On January 1, 2014, Ursula Limited agreed to a non-cancellable lease for a submarine, which the following information is available: a. The asset is new at the inception of the lease term with a 16 year expected life and is worth $219,000. b. Initial lease term is five years at $40,000 per year (includes $8,000 for insurance and maintenance), starting and paid on 1 January 2014. At the end of

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question
On January 1, 2014, Ursula Limited agreed to a non-cancellable lease for a submarine, which the following information is available: a. The asset is new at the inception of the lease term with a 16 year expected life and is worth $219,000. b. Initial lease term is five years at $40,000 per year (includes $8,000 for insurance and maintenance), starting and paid on 1 January 2014. At the end of the initial lease term, the lease is renewable at Ursula's option for $20,000 per year (includes $5,000 for insurance and maintenance) for a further 8 years. d. Any residual value is not guaranteed by Ursula Limited and the asset reverts back to the lessor at the end of any lease term. The straight-line depreciation method is used for the leased asset f. Ursula Limited's incremental borrowing rate is 8%. The rate implicit in the lease is unknown. g. Ursula can rent a submarine that is 8 years old today for approximately $ 35,000 per year. h. Ursula Limited has a 31 December fiscal year-end. Required: 1. Is this an operating lease or a financing lease? Explain. 2. Prepare an amortization schedule for the first two years. 3. Prepare all necessary entries for 2014.
Expert Solution
steps

Step by step

Solved in 3 steps

Blurred answer
Knowledge Booster
Accounting for Leases
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
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education