On January 1, 2020, a machine was purchased for $400,000 by Younger Leasing Co. The machine is expected to have a 10-year life with no salvage value. Similar machines are depreciated on a straight-line basis by Younger. The machine was leased to Juniper Inc. for 3 years on January 1, 2020, with annual rent payments of $69,560 due at the beginning of each year, starting January 1, 2020. The machine is expected to have a residual value at the end of the lease term of $260,000, though this amount is unguaranteed. Assume an incremental borrowing rate of 8% and an implicit rate of 6%. The present value of a $1 for 3 periods at 6% is 0.83962 and at 8% is 0.79383. The present value of an annuity due for 3 periods at 6% is 2.83339 and at 8% is 2.78326. For the fiscal year 2020, is there a difference in the expense reported by Juniper if it follows US GAAP versus IFRS? If there is a difference, what is the main cause of that difference?
On January 1, 2020, a machine was purchased for $400,000 by Younger Leasing Co. The machine is expected to have a 10-year life with no salvage value. Similar machines are depreciated on a straight-line basis by Younger. The machine was leased to Juniper Inc. for 3 years on January 1, 2020, with annual rent payments of $69,560 due at the beginning of each year, starting January 1, 2020. The machine is expected to have a residual value at the end of the lease term of $260,000, though this amount is unguaranteed. Assume an incremental borrowing rate of 8% and an implicit rate of 6%. The present value of a $1 for 3 periods at 6% is 0.83962 and at 8% is 0.79383. The present value of an annuity due for 3 periods at 6% is 2.83339 and at 8% is 2.78326. For the fiscal year 2020, is there a difference in the expense reported by Juniper if it follows US GAAP versus IFRS? If there is a difference, what is the main cause of that difference?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Concept explainers
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Topic Video
Question
On January 1, 2020, a machine was purchased for $400,000 by Younger Leasing Co. The machine is expected to have a 10-year life with no salvage value. Similar machines are depreciated on a straight-line basis by Younger. The machine was leased to Juniper Inc. for 3 years on January 1, 2020, with annual rent payments of $69,560 due at the beginning of each year, starting January 1, 2020. The machine is expected to have a residual value at the end of the lease term of $260,000, though this amount is unguaranteed.
Assume an incremental borrowing rate of 8% and an implicit rate of 6%. The present value of a $1 for 3 periods at 6% is 0.83962 and at 8% is 0.79383. The present value of an annuity due for 3 periods at 6% is 2.83339 and at 8% is 2.78326.
For the fiscal year 2020, is there a difference in the expense reported by Juniper if it follows US GAAP versus IFRS? If there is a difference, what is the main cause of that difference?
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!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
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.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education