Homework Help is Here – Start Your Trial Now!
Business
Accounting
P21-12. Please solve part e,f,g and show all workings clearly.

P21-12. Please solve part e,f,g and show all workings clearly.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
Question

P21-12. Please solve part e,f,g and show all workings clearly.

P21.12 (LO 2, 3, 4) (Lessee-Lessor Entries, Statement of Financial Position Presentation, Finance and Sales-Type Lease) Winston Industries and Ewing SA enter into an agreement that requires Ewing to build three diesel- electric engines to Winston's specifications. Upon completion of the engines, Winston has agreed to lease them for a period of 10 years and to assume all costs and risks of ownership. The lease is non-cancelable, becomes effective on January 1, 2022, and requires annual rental payments of €384,532 each January 1, starting January 1, 2022. Winston's incremental borrowing rate is 8%. The implicit interest rate used by Ewing and known to Winston is 6%. The total cost of building the three engines is €2,600,000. The economic life of the engines is estimated to be 10 years, with residual value set at zero. Winston depreciates similar equipment on a straight- line basis. At the end of the lease, Winston assumes title to the engines. Collectibility of the lease payments is probable. Instructions a. Discuss the nature of this lease transaction from the viewpoint of the lessor. b. Prepare the journal entry or entries to record the transaction on January 1, 2022, on the books of Winston (the lessee). c. Prepare the journal entry or entries to record the transaction on January 1, 2022, on the books of Ewing (the lessor). d. Prepare the journal entries for both the lessee and lessor to record the first rental payment on January 1, 2022. e. Prepare the journal entries for both the lessee and lessor to record any entries needed in connection with the lease at December 31, 2022. (Prepare a lease amortization schedule for 2 years.) f. Show the items and amounts that would be reported on the statement of financial position (not notes) at December 31, 2022, for both the lessee and the lessor. g. Assume that Winston incurs legal fees related to the execution of the lease of €30,000. In addition, assume Winston receives a lease incentive from Ewing of €50,000 to enter the lease. How will this affect your answer to part (b)?
Transcribed Image Text:P21.12 (LO 2, 3, 4) (Lessee-Lessor Entries, Statement of Financial Position Presentation, Finance and Sales-Type Lease) Winston Industries and Ewing SA enter into an agreement that requires Ewing to build three diesel- electric engines to Winston's specifications. Upon completion of the engines, Winston has agreed to lease them for a period of 10 years and to assume all costs and risks of ownership. The lease is non-cancelable, becomes effective on January 1, 2022, and requires annual rental payments of €384,532 each January 1, starting January 1, 2022. Winston's incremental borrowing rate is 8%. The implicit interest rate used by Ewing and known to Winston is 6%. The total cost of building the three engines is €2,600,000. The economic life of the engines is estimated to be 10 years, with residual value set at zero. Winston depreciates similar equipment on a straight- line basis. At the end of the lease, Winston assumes title to the engines. Collectibility of the lease payments is probable. Instructions a. Discuss the nature of this lease transaction from the viewpoint of the lessor. b. Prepare the journal entry or entries to record the transaction on January 1, 2022, on the books of Winston (the lessee). c. Prepare the journal entry or entries to record the transaction on January 1, 2022, on the books of Ewing (the lessor). d. Prepare the journal entries for both the lessee and lessor to record the first rental payment on January 1, 2022. e. Prepare the journal entries for both the lessee and lessor to record any entries needed in connection with the lease at December 31, 2022. (Prepare a lease amortization schedule for 2 years.) f. Show the items and amounts that would be reported on the statement of financial position (not notes) at December 31, 2022, for both the lessee and the lessor. g. Assume that Winston incurs legal fees related to the execution of the lease of €30,000. In addition, assume Winston receives a lease incentive from Ewing of €50,000 to enter the lease. How will this affect your answer to part (b)?
Expert Solution
steps

Step by step

Solved in 2 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS