On January 1, 2023, Lavery Corp., which follows ASPE, leased equipment to Pharoah Ltd, which follows IFRS. Both Lavery and Pharoah have calendar year ends. The following information concerns this lease: 1. 2. 3. 4. 5. 6. The term of the non-cancellable lease is six years, with no renewal option. The equipment reverts to the lessor at the termination of the lease, at which time it is expected to have a residual value (not guaranteed) of $6,500. Pharoah depreciates all its equipment on a straight-line basis. Equal rental payments are due on January 1 of each year, beginning in 2023. The equipment's fair value on January 1, 2023, is $153,000 and its cost to Lavery is $111,000. The equipment has an economic life of seven years. Lavery set the annual rental to ensure a 8% rate of return. Pharoah's incremental borrowing rate is 9% and the lessor's implicit rate is unknown to the lessee. Collectibility of lease payments is reasonably predictable and there are no important uncertainties about any unreimbursable costs that have not yet been incurred by the lessor. Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE. Using (1) time value of money tables, (2) a financial calculator, or (3) Excel spreadsheet functions, calculate the amount of the annual rental payment. (Round factor values to 5 decimal places, eg. 1.25124 and final answer to 0 decimal places, eg. 5,275.) Annual rental payment $
On January 1, 2023, Lavery Corp., which follows ASPE, leased equipment to Pharoah Ltd, which follows IFRS. Both Lavery and Pharoah have calendar year ends. The following information concerns this lease: 1. 2. 3. 4. 5. 6. The term of the non-cancellable lease is six years, with no renewal option. The equipment reverts to the lessor at the termination of the lease, at which time it is expected to have a residual value (not guaranteed) of $6,500. Pharoah depreciates all its equipment on a straight-line basis. Equal rental payments are due on January 1 of each year, beginning in 2023. The equipment's fair value on January 1, 2023, is $153,000 and its cost to Lavery is $111,000. The equipment has an economic life of seven years. Lavery set the annual rental to ensure a 8% rate of return. Pharoah's incremental borrowing rate is 9% and the lessor's implicit rate is unknown to the lessee. Collectibility of lease payments is reasonably predictable and there are no important uncertainties about any unreimbursable costs that have not yet been incurred by the lessor. Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE. Using (1) time value of money tables, (2) a financial calculator, or (3) Excel spreadsheet functions, calculate the amount of the annual rental payment. (Round factor values to 5 decimal places, eg. 1.25124 and final answer to 0 decimal places, eg. 5,275.) Annual rental payment $
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
A 119.
Transcribed Image Text:On January 1, 2023, Lavery Corp., which follows ASPE, leased equipment to Pharoah Ltd., which follows IFRS. Both Lavery and
Pharoah have calendar year ends. The following information concerns this lease:
1.
2.
3.
4.
5.
6.
The term of the non-cancellable lease is six years, with no renewal option. The equipment reverts to the lessor at the
termination of the lease, at which time it is expected to have a residual value (not guaranteed) of $6,500. Pharoah
depreciates all its equipment on a straight-line basis.
Equal rental payments are due on January 1 of each year, beginning in 2023.
The equipment's fair value on January 1, 2023, is $153,000 and its cost to Lavery is $111,000.
The equipment has an economic life of seven years.
Lavery set the annual rental to ensure a 8% rate of return. Pharoah's incremental borrowing rate is 9% and the lessor's
implicit rate is unknown to the lessee.
Collectibility of lease payments is reasonably predictable and there are no important uncertainties about any
unreimbursable costs that have not yet been incurred by the lessor.
Click here to view the factor table PRESENT VALUE OF 1.
Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE
Using (1) time value of money tables, (2) a financial calculator, or (3) Excel spreadsheet functions, calculate the amount of the
annual rental payment. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 5,275.)
Annual rental payment $
Transcribed Image Text:Prepare all necessary journal entries and adjusting entries for Pharoah for 2023. List all debit entries before credit entries. Credit
account titles are automatically inderited when the amount is entered. Do not indent manually if no entry is required, select "No Entry for
the account altles and enter O for the amounts. Record journal entries in the order presented in the problem Round factor values to 5
decimal places, eg 1.25124 and final answers to O decimal places, eg 5,275)
Date
Account Titles and Explanation
(To record inception and payment of lease)
Date
(To record depreciation expense)
(To record interest)
eTextbook and Media
Prepare all necessary journal entries and adjusting entries for Lavery for 2023. (List all debit entries before credit entries. Credit
account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for
the account titles and enter O for the amounts. Record journal entries in the onder presented in the problems Record journal entries in the
order presented in the problem. Round factor values to 5 decimal places, eg 1.25124 and final answers to 0 decimal places, eg 5,275)
Account Titles and Explanation
(To record inception of lease and cost of goods sold
(Collection of lease payment)
Debit
(To record interest)
Credit
Debit
Cre
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