Gramwell International Ltd leased equipment from Lubsal Financial Group Ltd. The details are as follows: Start of Lease April 1, 2021 Lease term (non cancellable) 5 years Annual lease payment due at the end of each year beginning April 1, 2021 $142,500 Fair value of asset at April 1, 2021 $650,000 Economic life of leased equipment 7 years Residual value of equipment at end of lease term, unguaranteed by the lessee $126,350 Lessee’s incremental borrowing rate 8% The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line depreciation method for all equipment. (Round all figures to the nearest $1.) i) Calculate the lease liability for Gramwell International Ltd. ii) Prepare the journal entries for Gramwell International Ltd at the start of the lease on April 1, 2021. iii) Prepare the lease journal entries for Gramwell International Ltd for the year ended December 31, 2021. iv) Prepare the amortization schedule and calculate the total interest for the 5-year lease term?
2. Gramwell International Ltd leased equipment from Lubsal Financial Group Ltd. The details are as follows:
|
Start of Lease |
April 1, 2021 |
|
Lease term (non cancellable) |
5 years |
|
Annual lease payment due at the end of each year beginning April 1, 2021 |
$142,500 |
|
Fair value of asset at April 1, 2021 |
$650,000 |
|
Economic life of leased equipment |
7 years |
|
Residual value of equipment at end of lease term, unguaranteed by the lessee |
$126,350 |
|
Lessee’s incremental borrowing rate |
8% |
The asset will revert to the lessor at the end of the lease term. The lessee uses the
(Round all figures to the nearest $1.)
i) Calculate the lease liability for Gramwell International Ltd.
ii) Prepare the
iii) Prepare the lease journal entries for Gramwell International Ltd for the year ended December 31, 2021.
iv) Prepare the amortization schedule and calculate the total interest for the 5-year lease term?
i)
Lease Liability = PV of lease payments
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N |
Answer |
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IY |
Answer |
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PMT |
Answer |
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FV |
Answer |
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PV |
Answer |
ii) April 1, 2021
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DR AnswerRight of Use AssetEquipmentPurchases |
Answer |
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CR AnswerLease liabilitySalesBank |
Answer |
iii)December 31, 2021
Interest Expense
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DR AnswerLease liabilityEquipmentPurchases |
Answer |
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DR AnswerInterest ExpenseInterest PayableAccounts Receivable |
Answer |
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Accounts Payable |
Answer |
Depreciation Expense
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DR AnswerDepreciation ExpenseLease liabilityRight of Use Asset |
Answer |
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CR AnswerAcc. DepreciationSalesLease liability |
Answer |
iv) Schedule
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Period |
Lease liability (A) |
Lease Payment (B) |
Interest (C) |
Decrease in lease liability (D) |
Lease Liability c/f (E) |
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1 |
Answer |
$142500 |
Answer |
Answer |
Answer |
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2 |
Answer |
$142500 |
Answer |
Answer |
Answer |
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3 |
Answer |
Answer |
Answer |
Answer |
Answer |
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4 |
Answer |
Answer |
Answer |
Answer |
Answer |
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5 |
Answer |
Answer |
Answer |
Answer |
$0 |
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