On 1 January 2020, Halwani Construction Company entered into a two-year lease for an excavator. The contract contains an option to extend the lease term for further year. Halwani believes that it is reasonably certain to exercise this option. Excavator has a useful life of ten years Lease payments are $15,000 per year for the initial term and $22,500 per year for the option period. All payments are due at the end of the year. To obtain the lease Halwani incurs initial direct cost of $4,500. The interest rate within the lease is not readily determinable. Halwani's incremental rate of borrowing is 5%. Required: (a) Calculate the lease liability in a proper form. (b) Calculate the initial cost of the right-of-use asset. (c) Show the journal entries to record the above transactions Calculate the depreciation for the year 2020 on the right of use of the asset.

On 1 January 2020, Halwani Construction Company entered into a two-year lease for an excavator. The contract contains an option to extend the lease term for further year. Halwani believes that it is reasonably certain to exercise this option. Excavator has a useful life of ten years Lease payments are $15,000 per year for the initial term and $22,500 per year for the option period. All payments are due at the end of the year. To obtain the lease Halwani incurs initial direct cost of $4,500. The interest rate within the lease is not readily determinable. Halwani's incremental rate of borrowing is 5%. Required: (a) Calculate the lease liability in a proper form. (b) Calculate the initial cost of the right-of-use asset. (c) Show the journal entries to record the above transactions Calculate the depreciation for the year 2020 on the right of use of the asset.

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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