On January 1, 2023, Marigold Ltd. entered into an agreement to lease a truck from Cullumber Ltd. Both Marigold and Cullumber use IFRS. The details of the agreement are as follows: Carrying value of truck for Cullumber Fair value of truck Economic life of truck Lease term Rental payments (at beginning of each month) Executory costs included in rental payments each month for insurance Incremental borrowing rate for Marigold Marigold expects to pay Cullumber $3,630 under a residual value guarantee for the truck. Additional information: 1. 2. 3. 4. 5. $19,870 $19,870 5 years 3 years $590 $20 12% There are no abnormal risks associated with the collection of lease payments from Marigold. There are no additional unreimbursable costs to be incurred by Cullumber in connection with the leased truck. At the end of the lease term, Cullumber sold the truck to a third party for $3,370, which was the truck's fair value at December 31, 2025. Marigold paid Cullumber the difference between the residual value guarantee of $3,630 and the proceeds obtained on the resale. Marigold knows the interest rate that is implicit in the lease. Marigold knows the amount of executory costs included in the minimum lease payments.
On January 1, 2023, Marigold Ltd. entered into an agreement to lease a truck from Cullumber Ltd. Both Marigold and Cullumber use IFRS. The details of the agreement are as follows: Carrying value of truck for Cullumber Fair value of truck Economic life of truck Lease term Rental payments (at beginning of each month) Executory costs included in rental payments each month for insurance Incremental borrowing rate for Marigold Marigold expects to pay Cullumber $3,630 under a residual value guarantee for the truck. Additional information: 1. 2. 3. 4. 5. $19,870 $19,870 5 years 3 years $590 $20 12% There are no abnormal risks associated with the collection of lease payments from Marigold. There are no additional unreimbursable costs to be incurred by Cullumber in connection with the leased truck. At the end of the lease term, Cullumber sold the truck to a third party for $3,370, which was the truck's fair value at December 31, 2025. Marigold paid Cullumber the difference between the residual value guarantee of $3,630 and the proceeds obtained on the resale. Marigold knows the interest rate that is implicit in the lease. Marigold knows the amount of executory costs included in the minimum lease payments.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Prepare the journal entries that Cullumber would make on January 1, 2023, and the adjusting journal entries at December 31,
2023, to record the annual interest income from the lease arrangement, assuming that Cullumber has a December 31 fiscal year
end. (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. Round answers to O decimal places,
e.g. 5,275.)
te
023
1, 2023
v
Account Titles and Explanation
Cash
Lease Receivable
Insurance Expense
Unearned Interest Income
Equipment Acquired for Lessee
Unearned Interest Income
Interest Income
Debit
590
Credit
7000
100000
Transcribed Image Text:On January 1, 2023, Marigold Ltd. entered into an agreement to lease a truck from Cullumber Ltd. Both Marigold and Cullumber use
IFRS. The details of the agreement are as follows:
Carrying value of truck for Cullumber
Fair value of truck
Economic life of truck
Lease term
Rental payments (at beginning of each month)
Executory costs included in rental payments each month for insurance
Incremental borrowing rate for Marigold
Marigold expects to pay Cullumber $3,630 under a residual value guarantee for the truck.
Additional information:
1.
2.
3.
4.
5.
$19,870
$19,870
5 years
3 years
$590
$20
12%
There are no abnormal risks associated with the collection of lease payments from Marigold.
There are no additional unreimbursable costs to be incurred by Cullumber in connection with the leased truck.
At the end of the lease term, Cullumber sold the truck to a third party for $3,370, which was the truck's fair value at
December 31, 2025. Marigold paid Cullumber the difference between the residual value guarantee of $3,630 and the
proceeds obtained on the resale.
Marigold knows the interest rate that is implicit in the lease.
Marigold knows the amount of executory costs included in the minimum lease payments.
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