DB Company Ltd. Leased a patent for the manufacture of radio components from JK DevelopersLtd. On 1 January 2023 for a ten-year period at a loyalty of Sh.50 per component manufacturedand sold.Minimum rent was agreed at Sh.4,000,000 per annum and loyalties for each year were paid on 15February of the following year. Short workings arising in any year were recoverable only withinthe following two years of operation.The number of components manufactured and sold by each company in each of the five yearsended 31 December 2023 were as follows.YearᎠᏴCompany Ltd.Number of unitsNumber of sold201748,00046,000201862,00060,000201972,00066,000202084,00082,000202190,00092,000Required:Prepare the following accounts in the books of DB Company Ltd. For each of the five years ended31 December 2023:Page 1 of 3(a) Royalties payable account(5 marks) ེཌུ(b)Short workings recoverable(5 marks)(c)Royalties receivable account(5 marks)(d)Profit & Loss account(5 marks)

Part 2: Explanation(a) Royalties payable account:Step 1: Calculate the total number of units…

Answered: DB Company Ltd. Leased a patent for the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Christina Co. has a factory equipment with a carrying amount of P700,000 and has a remaining useful life of 7 years. On January 1, 2020, Christina agreed to an exchange transaction with Kat & Inc. to transfer the equipment to the latter. The transfer satisfied the requirements of PFRS 15 to be a sale and Christina immediately leased it back for a lease term equal to the remaining life of the equipment. The sales price amounted to P500,000 while annual rental payable at the end of each year is P100,000 for an implicit rate of 10%. Selling price is equal to fair value. How much loss shall Christina recognize in relation to the sale and leaseback transaction? a. 681,578.63 b. 200,000 c. 194,736.75 d. 5,263.25
Gordon Inc., a private company that follows ASPE, entered into a lease agreement with Canada Leasing Corporation to lease a warehouse for six years. Annual lease payments are $21,000, payable at the beginning of each lease year. Gordon Inc. signed the lease agreement on January 1, 2021, and made the first payment on that date. At the end of the lease, the machine will revert back to Canada Leasing Corporation. The normal useful life of the warehouse is 10 years. At the time of the lease, the warehouse could be purchased for $108,000. Gordon does not know the implicit rate of the lease; Gordon's incremental borrowing rate is 10%. Gordon uses straight-line depreciation for this type of asset. Required: Using the three criteria under ASPE, prove whether this is an operating or capital lease. Prepare a lease amortization schedule for the lease. Round all amounts to the nearest dollar. Prepare the journal entries for 2021 and 2022 for Gordon Inc. Round amounts to the nearest…
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On January 1, 2024, Nath-Langstrom Services, Incorporated, a computer software training firm, leased several computers under a two- year operating lease agreement from ComputerWorld Leasing, which routinely finances equipment for other firms at an annual interest rate of 4%. The contract calls for four rent payments of $20,000 each, payable semiannually on June 30 and December 31 each year. • The computers were acquired by ComputerWorld at a cost of $110,000 and were expected to have a useful life of eight years with no residual value. . Both firms record amortization and depreciation semiannually. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) • Required: 1. Prepare appropriate journal entries recorded by Nath-Langstrom Services for the first year of the lease. 2. Prepare appropriate journal entries recorded by ComputerWorld Leasing for the first year of the lease. Complete this question by entering your…
Canada M. manufactures special equipment with an estimated economic life of 12 years and leases it to Phranka for a period of 10 years commencing January 1, 2021. The unguaranteed residual value at the end of the lease term is estimated to be $15,000. Phranka will make annual payments of $25,000 at the beginning of each year and pay for all maintenance and insurance costs. Canada M. incurred costs of $105,000 in manufacturing the equipment but is looking to make a profit on the sale of equipment. In addition, Phranka incurred $7000 in costs tied to negotiating and closing the lease. Canada M. has determined that the collectability of the lease payments is reasonably predictable, that no additional costs will be incurred, and that the implicit interest rate is 8%. Phranka has a borrowing rate of 8%. How should Canada M. classify this lease transaction? a. Classify as an operating lease. b. Classify as a capital, sales type lease. c. Classify as a capital, direct finance type lease.…
On January 1, 2024, Robertson Construction leased several items of equipment under a two-year operating lease agreement from Jamison Leasing, which routinely finances equipment for other firms at an annual interest rate of 4%. The contract calls for four rent payments of $58,000 each, payable semiannually on June 30 and December 31 each year. The equipment was acquired by Jamison Leasing at a cost of $378,000 and was expected to have a useful life of five years with no residual value. Both firms record amortization and depreciation semi-annually. Required: Prepare the appropriate journal entries for the lessor (Jamison Leasing) from the beginning of the lease through the end of 2024. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Record the first payment received by Jamison Leasing. Record the amortization or depreciation expense for Jamison Leasing. Record the second payment received by Jamison Leasing.…

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