On January 1, 2021, ABC Company enters into a 4-year lease of a machinery. Annual rental is P200,000 payable at the beginning of each year. ABC does not know the lessor's implicit interest rate. ABC's incremental borrowing rate is 14%. Lessee incurs initial direct costs of P50,000 in negotiating the lease. The underlying asset's remaining useful life is 10 years. Required: 1. Prepare the journal entries for 01/01/2021, 12/31/2021, and 01/01/2022. 2. Compute the carrying amounts of the right of use asset and lease liability on December 31, 2021.

On January 1, 2021, ABC Company enters into a 4-year lease of a machinery. Annual rental is P200,000 payable at the beginning of each year. ABC does not know the lessor's implicit interest rate. ABC's incremental borrowing rate is 14%. Lessee incurs initial direct costs of P50,000 in negotiating the lease. The underlying asset's remaining useful life is 10 years. Required: 1. Prepare the journal entries for 01/01/2021, 12/31/2021, and 01/01/2022. 2. Compute the carrying amounts of the right of use asset and lease liability on December 31, 2021.

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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On December 31, 2020, Cleeneth Company leased equipment under a finance lease. Annual lease payments of P400,000 are due December 31 for 10 years. The equipment's useful life is 10 years, and the interest rate implicit in the lease is 10%. The lease obligation was recorded on December 31, 2020 at P2,700,000 and the first lease payment was made on that date. What amount should Cleeneth Company include in current liabilities in relation to the finance lease in its December 31, 2020 statement of financial position?
On 1 January 2020, the company had entered into a five-year lease agreement for an office space with GP S.A.O.G. The company must make lease payments of OMR 50,000 annually at the beginning of each year. The present value of the total lease payments is OMR 208,500. The cost of capital used is 10%. What amount should be recognised in right-to-use-asset as per IFRS 16 in the books of the lessee. O a. OMR 158,500. O b. OMR 208,500. OC. OMR 250,000. O d. OMR 25,000.
On 1 January 2020, Moon Co entered into a five-year lease of equipment which has a remaining useful life of eight years. Lease payments are BD84,000 per annum, payable at the beginning of each year. Moon Co incurred initial direct costs of BD36,000 and received lease incentives of BD4,400. There is no transfer of the asset at the end of the lease and no purchase option. The interest rate implicit in the lease is 7%. At the commencement date of the lease, Moon Co paid initial BD84,000, incurred the direct costs and received the lease incentives. Moon Co uses the straight-line method of depreciation. (Note: Present value annuity factor for four years and 7% is 3.387). Required: (a) Prepare the relevant extracts from the financial statements of Moon Co for the year ended 31 December 2020 (Note: Show your workings and round to the nearest BD). (b) Using the conceptual framework for financial reporting, discuss the rationale for and accounting implications of adopting IFRS 16 Leases.
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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
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On January 1, 2021, Small company leased a machine from Huge Company. The following information relates to the lease: Annual rental payable in advance every January 1 - P500,000 Unguaranteed residual value - P50,000 Implicit interest rate in lease - 12% Incremental borrowing rate - 15% Lease term - 6 years Estimated useful life of the machine - 8 years (Round off the PV factor to four decimal places, then do not round off during the computation)What is the balance of Lease Liability at December 31, 2022?
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.