Part 2: At January 1, 2024, Norway Company leased a machine from Yong Manufacturer. The following informationpertains to the lease:Lease termAnnual lease payments beginning January 1, 2024 and at eachDecember 31 thereafter through 2025Present value of lease payments at 6%Yong Manufacturer's implicit rate (known by Norway)3 years$80,000$226,6716%On December 31, 2026, the machine reverts back to Yong. Both companies use straight-linedepreciation/amortization. Assume useful life of machine is 5 years. Fair value of equipment is $360,000. The lease isclassified as an operating lease:• What is the balance of right-of-use asset that Norway will report in its balance sheet at December 31, 2024?

Lease:A contract in which one party allows another party to use his/her property or asset in return…

Lease term Annual lease payments beginning January 1, 2024 and at each December 31 thereafter through 2025 Present value of lease payments at 6% 3 years $80,000 $226,671 Yong Manufacturer's implicit rate (known by Norway) 6%

Lease term Annual lease payments beginning January 1, 2024 and at each December 31 thereafter through 2025 Present value of lease payments at 6% 3 years $80,000 $226,671 Yong Manufacturer's implicit rate (known by Norway) 6%

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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Question

Part 2: At January 1, 2024, Norway Company leased a machine from Yong Manufacturer. The following information
pertains to the lease:
Lease term
Annual lease payments beginning January 1, 2024 and at each
December 31 thereafter through 2025
Present value of lease payments at 6%
Yong Manufacturer's implicit rate (known by Norway)
3 years
$80,000
$226,671
6%
On December 31, 2026, the machine reverts back to Yong. Both companies use straight-line
depreciation/amortization. Assume useful life of machine is 5 years. Fair value of equipment is $360,000. The lease is
classified as an operating lease:
• What is the balance of right-of-use asset that Norway will report in its balance sheet at December 31, 2024?

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On December 31, 2020, Brick Co. leases Equipment to House, Inc. Annual Lease Payments made at beginning of Lease year $159,000 Implicit rate Guaranteed Residual Value Expected Residual Value Present value of an annuity due (7%,5) Present value of an ordinary annuity (7%,5) Present value of a single sum (7%,5) 7% $155,500 $56,500 4.38721 4.10020 0.71299 What journal entry would House, Inc. make at December 31, 2020 to record the lease assuming this is a finance lease? O DR Right of Use Asset $768,152; CR Lease Liability $768,152 O DR Right of Use Asset $808,426; CR Lease Liability $808,436 O DR Right of Use Asset $737,850; CR Lease Liability $737,850 O DR Right of Use Asset $626,980; CR Lease Liability $626,980
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