On January 1 of Year 1, Wayne Inc. signed an eight-year lease for office space for $48,000 annually due each January 1, with the first payment due immediately. Wayne has the option to renew the lease for an additional four-year period on or before January 1 of Year 9, at market lease rates at the time of renewal. The remaining economic life of the office is 30 years. Wayne Inc. is not aware of the implicit rate of the lease but has an incremental borrowing rate of 7%. Wayne Inc. paid $2,000 on January 1 of Year 1 for initial direct costs. Required a. How would Wayne Inc. classify the lease?

On January 1 of Year 1, Wayne Inc. signed an eight-year lease for office space for $48,000 annually due each January 1, with the first payment due immediately. Wayne has the option to renew the lease for an additional four-year period on or before January 1 of Year 9, at market lease rates at the time of renewal. The remaining economic life of the office is 30 years. Wayne Inc. is not aware of the implicit rate of the lease but has an incremental borrowing rate of 7%. Wayne Inc. paid $2,000 on January 1 of Year 1 for initial direct costs. Required a. How would Wayne Inc. classify the lease?

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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A lessee company signed a lease for equipment from a lessor on January 1, Year 1. The lease requires equal rental payments of $18,820 at the beginning of each year of the term. The PV of the lease payments is $108,950. The company pays all executory costs directly to third parties. The appropriate interest rate is 8.65%. Assume IFRS 16 applies. Both the lessor and lessee have December 31 year ends. How much wil be the balance of the Lease Liability in the lessee's books at the end of Year 1 after all adjusting entries assuming (1) the fair value of the equipment equals the PV of the lease payments and (2) any interest is accrued directly to the Lease Liability? 1. $88,134 2. $90,582 3. $93,030 4. $95,478 5. $97,926
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On January 1, 2021, Rick's Pawn Shop leased a truck from Corey Motors for a seven-year period with an option to extend the lease for three years. Rick's had no significant economic Incentive as of the beginning of the lease to exercise the 3-year extension option. Annual lease payments are $16,500 due on December 31 of each year, calculated by the lessor using a 4% Interest rate. The agreement is considered an operating lease. (FV of $1. PV of $1, FVA of $1, PVA of $1. FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Prepare Rick's Journal entry to record for the right-of-use asset and lease llability at January 1, 2021. 2. Prepare the Journal entries to record Interest and amortization at December 31, 2021. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare Rick's journal entry to record for the right-of-use asset and lease liability at January 1, 2021. (If no entry is requir transaction/event,…
Sheffield Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2020. Annual rental payments of $53,000 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 7%; Sheffield’s incremental borrowing rate is 9%. Sheffield is unaware of the rate being used by the lessor. At the end of the lease, Sheffield has the option to buy the equipment for $5,000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Sheffield uses the straight-line method of depreciation on similar owned equipment.
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