On 1 January 20x2, TwitX Ltd (TXL) entered into a three-year non-cancellable lease agreement to lease a piece of equipment from TipTop Leasing Ltd (TTL). Lease rental of $12,000 per year are to be paid by TXL on 31 December of each of the three years, commencing 31 December 20x2. TXL guaranteed that the leased asset would have a residual value of $3,000 when the leased asset is reverted to the lessor at the end of the lease term on 31 December 20x4. TXL had no knowledge of the implicit rate used in the lease and its incremental borrowing rate was 10% per annum. TLL's rate of return is 8% per annum. The equipment was new on 1 January 20x2, had a fair market value of $35,000. The leased asset was expected to have an estimated useful life of four years and a residual value of $4,000. Required: (part 1) Compute, as required under FRS 116 Leases, the lease liability and right-of-use asset from the perspective of TXL as at 1 January 20x2. Present the amortization table showing the amortization of the lease liability over the three years and prepare the relevant journal entries (journal narratives NOT required) to illustrate the accounting of the lease for TXL from 1 January 20x2 to 31 December 20x4. Round your answers to the nearest dollar. (part 2) If the fair value of the equipment at the end of the lease term was $2,000 at 31 December 20x4, prepare the journal entries to record the transaction for TXL. (part 3) Prepare all the relevant journal entries (journal narratives NOT required) to illustrate the accounting of the lease for TTL from 1 January 20x2 to 31 December 20x4. Assume that this lease arrangement ends on 31 December 20x4.
On 1 January 20x2, TwitX Ltd (TXL) entered into a three-year non-cancellable lease agreement to lease a piece of equipment from TipTop Leasing Ltd (TTL). Lease rental of $12,000 per year are to be paid by TXL on 31 December of each of the three years, commencing 31 December 20x2. TXL guaranteed that the leased asset would have a residual value of $3,000 when the leased asset is reverted to the lessor at the end of the lease term on 31 December 20x4. TXL had no knowledge of the implicit rate used in the lease and its incremental borrowing rate was 10% per annum. TLL's rate of return is 8% per annum. The equipment was new on 1 January 20x2, had a fair market value of $35,000. The leased asset was expected to have an estimated useful life of four years and a residual value of $4,000. Required: (part 1) Compute, as required under FRS 116 Leases, the lease liability and right-of-use asset from the perspective of TXL as at 1 January 20x2. Present the amortization table showing the amortization of the lease liability over the three years and prepare the relevant journal entries (journal narratives NOT required) to illustrate the accounting of the lease for TXL from 1 January 20x2 to 31 December 20x4. Round your answers to the nearest dollar. (part 2) If the fair value of the equipment at the end of the lease term was $2,000 at 31 December 20x4, prepare the journal entries to record the transaction for TXL. (part 3) Prepare all the relevant journal entries (journal narratives NOT required) to illustrate the accounting of the lease for TTL from 1 January 20x2 to 31 December 20x4. Assume that this lease arrangement ends on 31 December 20x4.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On 1 January 20x2, TwitX Ltd (TXL) entered into a three-year non-cancellable lease agreement to lease a piece of
equipment from TipTop Leasing Ltd (TTL). Lease rental of $12,000 per year are to be paid by TXL on 31 December of
each of the three years, commencing 31 December 20x2. TXL guaranteed that the leased asset would have a residual
value of $3,000 when the leased asset is reverted to the lessor at the end of the lease term on 31 December 20x4. TXL
had no knowledge of the implicit rate used in the lease and its incremental borrowing rate was 10% per annum. TLL's
rate of return is 8% per annum. The equipment was new on 1 January 20x2, had a fair market value of $35,000. The
leased asset was expected to have an estimated useful life of four years and a residual value of $4,000. Required: (part
1) Compute, as required under FRS 116 Leases, the lease liability and right-of-use asset from the perspective of TXL as
at 1 January 20x2. Present the amortization table showing the amortization of the lease liability over the three years and
prepare the relevant journal entries (journal narratives NOT required) to illustrate the accounting of the lease for TXL
from 1 January 20x2 to 31 December 20x4. Round your answers to the nearest dollar. (part 2) If the fair value of the
equipment at the end of the lease term was $2,000 at 31 December 20x4, prepare the journal entries to record the
transaction for TXL. (part 3) Prepare all the relevant journal entries (journal narratives NOT required) to illustrate the
accounting of the lease for TTL from 1 January 20x2 to 31 December 20x4. Assume that this lease arrangement ends on
31 December 20x4.
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