QUESTION 2On January 1, 20X1, Dynamic entered into a two-year lease fora lorry. The contract contains an option to extend the lease for afurther year. Dynamic believes that it is reasonably certain toexercise this option. Lorries have a useful economic life of tenyears.Lease payments are $10,000 per year for the initial term and$15,000 per year for the option period. All payments are due atthe end of the year. To obtain the lease, Dynamic incurs initialdirect costs of $3,000. The lessor immediately reimburses$1,000 of these costs.The interest rate within the lease is not readily determinable.Dynamic's incremental rate of borrowing is 5%.Present Value TableYear Discount rate 5%10.95220.90730.864Required:Calculate the initial carrying amount of the lease liability and theright-of-use asset and provide the double entries needed torecord these amounts in Dynamic's financial records.

ercise this option. Lorries have a useful economic 1 ars. Fase payments are $10,000 per year for the initia 5,000 per year for the option period. All payments e end of the year. To obtain the lease, Dynamic ir rect costs of $3,000. The lessor immediately ,000 of these costs.

ercise this option. Lorries have a useful economic 1 ars. Fase payments are $10,000 per year for the initia 5,000 per year for the option period. All payments e end of the year. To obtain the lease, Dynamic ir rect costs of $3,000. The lessor immediately ,000 of these costs.

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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Leasing

Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.

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