On December 31, 20x0 an entity sells one of its assets to a leasing company and immediately leases it back. Fair value of asset $750,000 Asset's original cost Accumulated depreciation $1,500,000 1,100,000 8 years 8 years Lease term Economic (and useful) life of asset Residual value Interest rate implicit in the lease (known to the lessee) Lessee's incremental borrowing rate 6% 6% At the end of the lease term, the asset's ownership reverts back to the lessee. The first lease payment of $113,941 is due on December 31, 20x0. Required – For each of the following, prepare the journal entries relative to this lease transaction at December 31, 20x0 and December 31, 20x1. (a) (b) The lessee is subject to IFRS The lessee is subject to ASPE.

On December 31, 20x0 an entity sells one of its assets to a leasing company and immediately leases it back. Fair value of asset $750,000 Asset's original cost Accumulated depreciation $1,500,000 1,100,000 8 years 8 years Lease term Economic (and useful) life of asset Residual value Interest rate implicit in the lease (known to the lessee) Lessee's incremental borrowing rate 6% 6% At the end of the lease term, the asset's ownership reverts back to the lessee. The first lease payment of $113,941 is due on December 31, 20x0. Required – For each of the following, prepare the journal entries relative to this lease transaction at December 31, 20x0 and December 31, 20x1. (a) (b) The lessee is subject to IFRS The lessee is subject to ASPE.

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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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%

On December 31, 20x0 an entity sells one of its assets to a leasing company and
immediately leases it back.
Fair value of asset
$750,000
Asset's original cost
Accumulated depreciation
$1,500,000
1,100,000
8 years
8 years
Lease term
Economic (and useful) life of asset
Residual value
Interest rate implicit in the lease (known to the lessee)
Lessee's incremental borrowing rate
6%
6%
At the end of the lease term, the asset's ownership reverts back to the lessee. The first
lease payment of $113,941 is due on December 31, 20x0.
Required –
For each of the following, prepare the journal entries relative to this lease transaction at
December 31, 20x0 and December 31, 20x1.
(a)
(b)
The lessee is subject to IFRS
The lessee is subject to ASPE.

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