On 1 January 2020, the company entered into a lease agreement for a production equipment which has a useful economic life of 8 years. The lease term is for four years and Kamel agrees to pay annual rent of GHc50,000 commencing on 1 January 2020 and annually thereafter. The interest rate implicit in the lease is 7.5% and the lessee's incremental borrowing rate is 10%. The present value of lease payments not yet paid on 1 January 2020 is GHe 130,026. Kamel paid legal fees of GHe 1,000 to set up the lease.

On 1 January 2020, the company entered into a lease agreement for a production equipment which has a useful economic life of 8 years. The lease term is for four years and Kamel agrees to pay annual rent of GHc50,000 commencing on 1 January 2020 and annually thereafter. The interest rate implicit in the lease is 7.5% and the lessee's incremental borrowing rate is 10%. The present value of lease payments not yet paid on 1 January 2020 is GHe 130,026. Kamel paid legal fees of GHe 1,000 to set up the lease.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: On 1 July 2019, Fisher Ltd decides to lease a cargo ship from XFinance Ltd. The term of the lease is…

A: Journal entry is a process of recording financial transaction with debit and credit columns along…

Q: During the year ended 30 September 2021 Hanlon Plc entered into two lease transactions. On 1…

A: Leases are agreements whereby the owner of a property or asset grants another party the right to use…

Q: On June 30, 2021, Georgia-Atlantic, Inc. leased warehouse equipment from Builders, Inc. The lease…

A: Given information is : On June 30, 2021, Georgia-Atlantic, Inc. leased warehouse equipment from…

Q: During the year ended 30 September 2021 Hanlon Plc entered into two lease transactions. On 1 October…

A: Lease is an arrangement wherein, in exchange for one or more payments, a lessor agrees to grant a…

Q: On January 1, 2022, Gobert Corp. leases equipment from Mitchell, Inc. The lease calls for annual…

A: Gobert Corp leases machine from Mitchell Inc.. According to IFRS 16, the lessee has to record the…

Q: Kerevei Ltd leases a machine for making dog crates from the Rennie bank on 1 july 2020. The lease if…

A: Amortization is the process of paying off a debt over time through regularly scheduled payments.…

Q: n January 2, 2021, Gold Star Leasing Company leases equipment to Brick Co. with 5 equal annual…

A: A lease is a contract in which a landlord (the lessor) offers the tenant (the lessee) the right to…

Q: cember 31, 2021, a company signed a seven-year finance lease for airplane. The airplane’s fair value…

A: The obligation of any person, as lessee, to pay rent or other payment amounts under a lease of real…

Q: present value of lease payments?

A: Year 1 = 1/1.03 = 0.971 Year 2 = 1/(1.03)2 = 0.943 Year 3 = 1/(1.03)3 = 0.915 Year 4 = 1/(1.03)4=…

Q: On December 31, 2020, Naruto Company signed a 7-year finance lease for an airplane to transport its…

A: A lease liability is the financial obligation recorded at present value of remaining lease payments…

Q: Q1 What is the value of the lease liability at the inception of the lease on 1 January 2019 in…

A: The value of the lease liability at the inception of the lease on 1 January 2019 is calculated by…

Q: Show ONLY the following three-line items in the Statement of Financial Position as at 30 June 2021:…

A: A right-of-use asset, or ROU asset, represents a lessee's authority to utilize a leased item,…

Q: On January 2, 2025, Gold Star Leasing Company leases equipment to Brick Co. with 5 equal annual…

A: A lease is a contract in which a landlord (the lessor) offers the tenant (the lessee) the right to…

Q: Wall finalised a lease arrangement with deliverrite on 1 July 2022 for a fleet of delivery vehicles…

A: Lease is defined a contractual agreement incorporated between two business entities where one entity…

Q: Curitiba plc., a services provider, leased a computer from CZ Finance plc. on 1 January 20X1. The…

A: Lessor and Lessee agreements: A lease of immovable property is a transfer of a right to enjoy such…

Q: Kerevi Ltd leases a machine for making dog crates from the Rennie Bank on 1 July 2020. The lease is…

A: A lease is an agreement between two parties where the lessor gives the right to use the asset to the…

Q: of six year

A: Explanation a)Annual lease payments=P1,200,000 Annual executory payments=P200,000 PV of an ordinary…

Q: ABC Enterprises entered into a five-year lease agreement on 1 November 2020, paying £10,975 per…

A: Based on the given data, The lease payable table is as follows: Year Beginning Value Interest (@…

Q: A company signs a lease that results in a $200 Operating Lease Asset and a $200 Operating Lease…

A: The correct answer is based on the assumption that both U.S. GAAP and IFRS would result in the same…

Q: On March 31, 20x1, TRUST CO. (customer)enters into a 4 -year lease of equipment with FAITH CO. (…

A: A lease can be defined as a legal contract between two parties where one party agrees to rent its…

Q: 3. On 1 July 2020 the company had entered into a five-year lease agreement for an asset with MRF…

A: Lease should be considered as Finance lease as the lease agreement and the estimated useful life of…

Q: Use the following information for the next two items: With Corporation entered into a lease with…

A: Lease accounting: Lease accounting is an accounting system used to record the financial impact due…

Q: . How much is the balance of the lease liability as of December 31, 2021?

A: Variable lease payment linked to the index is considered for lease liability calculation. Hence we…

Q: c. LTK BHD entered into an agreement to lease a forklift from HEAVY MACHINERY BHD on 1 January 2020.…

A: Under MFRS 16 lessees need to be account for lease liability and ROU asset on the date of…

Q: AS ACZ signed a 20x1 5-year lease agreement. According to this, AS ACZ must pay 5 equal payments…

A: In order to classify a lease as a capital lease any of the following conditions must be met a) There…

Q: On 1 January 2020, Moon Co entered into a five-year lease of equipment which has a remaining useful…

A: Lease is a contractual agreement under which one party gives its asset to another party for using…

Concept explainers

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.

Question

100%

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

Step 2

Step 3

Step 4

Step 5

Trending now

This is a popular solution!

Step by step

Solved in 5 steps with 6 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

On January 1, 2020, Mountain Inc. leases a machine used in its operations. The annual lease payment is $10,000 due on December 31 of 2020, 2021, and 2022. The fair value of the machine on January 1, 2020 is $26,730. The machine has no residual value. Mountain could borrow on a three-year collateralized loan at 6%. If the lease is accounted for as a finance lease, the total expenses related to this lease contract that Mountain Inc. will report in its income statement for the year ending December 31, 2020 is Select one: a. $10,600 b. $10,514 c. $10,717 d. $10,000
Lessee enters into a 10-year lease of property with annual lease payments of P50,000, payable at the beginning of each year. The contract specifies that lease payments will increase every two years on the basis of the increase in the Consumer Price Index for the preceding 24 months. The Consumer Price Index at the commencement date is 125. The rate implicit in the lease is not readily determinable. Lessee’s incremental borrowing rate is 5 per cent per annum, which reflects the fixed rate at which Lessee could borrow an amount similar to the value of the right-of-use asset, in the same currency, for a 10-year term, and with similar collateral. Discount factor for 5% for 9 periods is 7.10782.Lessee expects to consume the right-of-use asset’s future economic benefits evenly over the lease term and, thus, depreciates the right-of-use asset on a straight-line basis.At the beginning of the third year of the lease the Consumer Price Index is 135.Determine the amount of lease liability…
LTK BHD entered into an agreement to lease a forklift from HEAVY MACHINERY BHD on 1 January 2020. The lease is for six-year which requires LTK to make annual payments of RM25,000, payable in advance on 1 January 2020 and subsequently on 31 December each year. At the end of the lease, the forklift will be returned to HEAVY MACHINERY BHD. The cost of machine is RM200,000 with the expected residual value of RM20,000 and useful life of 10 years. PRESENT VALUE TABLE i. Assuming the implicit rate is 8 percent, show the journal entry on 1 January 2020 for LTK BHD. ii. Show all the journal entries on 31 December 2020 related to the lease for LTK BHD.
On 1 March 2020,the company entered into a lease agreement in order to lease a manufacturing machine with a costprice of R250 000 (VAT inclusive). The period of the lease is five years, and the useful life of the machinery is estimatedat six years. The following is an extract from the lease agreement:4.1.1 Ownership of the machinery will be transferred to the Lessee at the end of the lease.4.1.2 Should the Lessee cancel the lease, the Lessor’s losses will be borne by the Lessee.Monthly instalments are payable in arrears and amount to R5 947 (VAT inclusive). The company used themanufacturing machine for a qualifying purpose. The company is a registered VAT vendor.Required:Provide the deferred tax movement per the balance sheet method for the lease agreement for the financial year ending31 December 2021. Clearly indicate whether the movement represents an income or an expense. Note:- Show all calculations, marks are awarded for calculations.- You may round off to the nearest Rand.
On 1 July 2022, ABC Ltd enters into a four-year lease of a machine. ABC Ltd will pay fixed annual payments of $90 000 for four years with the first payment on 30 June 2023 To enter the lease ABC Ltd incurs direct costs of $12 000 at the commencement of the lease term There is a bargain purchase price option (that ABC Ltd is willing to exercise) for $30 000 at the end of the lease term The machine is expected to have a useful life of 10 years and no residual value. Lessee’s incremental borrowing rate: 10% Required: 1. Determine the initial measure of the lease liability and right-of-use asset and prepare the related accounting journal entry. 2. Prepare the lease payment schedule.
On March 31, 20x1, TRUST CO. (customer)enters into a 4 -year lease of equipment with FAITH CO. ( Supplier). The annual rent is P220,000, payable at the end of each year . The equipment has a remaining useful life of 10 years. The interest rate implicit in the lease is 10% while the lessee's incremental borrowing rate is 12%. The relevant value factors are as follows: PV of an ordinary annuity of P1@10%, n=4 ...... 3.16987 PV of an ordinary annuity of P1@12%, n=4 ....... 3.03735 How much is the lease liability to be recognized by TRUST CO. on initial recognition? A. P880,000 B. P697,371 C. P523,029 D. P702,345
On 1 July 2019, Fisher Ltd decides to lease a cargo ship from XFinance Ltd. The term of the lease is 20 years. The implicit interest rate in the lease is 10 per cent. The fair value of the cargo ship at the commencement of the lease is $2,215,560. The lease is non-cancellable, and requires a lease payment of $300,000 on inception of the lease (on 1 July 2019) and lease payments of $250,000 on 30 June each year (starting 30 June 2020). Included within the $250,000 lease payments is an amount of $25,000 representing payment to the lessor for the insurance and maintenance of the cargo ship. There is no residual payment required. Annuity factor, n=20; r = 10% is 8.5136.Required:a)Prove that the interest rate implicit in the lease is 10 per cent. b)Provide the entries for the lease in the books of Fisher Ltd as at 1 July 2019, and 30 June 2020. c)Provide the entries for the lease in the books of XFinance Ltd as at 1 July 2019, and 30 June 2020.
On 1 July 2019, Fisher Ltd decides to lease a cargo ship from XFinance Ltd. The term of the lease is 20years. The implicit interest rate in the lease is 10 per cent. The fair value of the cargo ship at thecommencement of the lease is $2,215,560. The lease is non-cancellable, and requires a lease paymentof $300,000 on inception of the lease (on 1 July 2019) and lease payments of $250,000 on 30 Juneeach year (starting 30 June 2020). Included within the $250,000 lease payments is an amount of$25,000 representing payment to the lessor for the insurance and maintenance of the cargo ship.There is no residual payment required. Annuity factor, n=20; r = 10% is 8.5136.Required:a) Prove that the interest rate implicit in the lease is 10 per cent. b) Provide the entries for the lease in the books of Fisher Ltd as at 1 July 2019, and 30 June 2020.c) Provide the entries for the lease in the book of Xfinance limited as at 1 July 2019, and 30 june 2020.