P21.3 (LO 2) Groupwork (Lessee Entries and Statement of Financial Position Presentation) Ludwick Steel SA, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2022. Annual rental payments of €40,000 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 6%; Ludwick's incremental borrowing rate is 8%. Ludwick is unaware of the rate being used by the lessor. At the end of the lease, Ludwick 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 residual value. Ludwick uses the straight-line method of depreciation on similar owned equipment. Instructions a. Prepare the journal entry or entries, with explanations, that Ludwick should record on December 31, 2022. b. Prepare the journal entry or entries, with explanations, that Ludwick should record on December 31, 2023. (Prepare the lease amortization schedule for all five payments.) c. Prepare the journal entry or entries, with explanations, that Ludwick should record on December 31, 2024. d. What amounts would appear on Ludwick's December 31, 2024, statement of financial position relative to the lease arrangement?
P21.3 (LO 2) Groupwork (Lessee Entries and Statement of Financial Position Presentation) Ludwick Steel SA, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2022. Annual rental payments of €40,000 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 6%; Ludwick's incremental borrowing rate is 8%. Ludwick is unaware of the rate being used by the lessor. At the end of the lease, Ludwick 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 residual value. Ludwick uses the straight-line method of depreciation on similar owned equipment. Instructions a. Prepare the journal entry or entries, with explanations, that Ludwick should record on December 31, 2022. b. Prepare the journal entry or entries, with explanations, that Ludwick should record on December 31, 2023. (Prepare the lease amortization schedule for all five payments.) c. Prepare the journal entry or entries, with explanations, that Ludwick should record on December 31, 2024. d. What amounts would appear on Ludwick's December 31, 2024, statement of financial position relative to the lease arrangement?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:P21.3 (LO 2) Groupwork (Lessee Entries and Statement of Financial
Position Presentation) Ludwick Steel SA, as lessee, signed a lease agreement
for equipment for 5 years, beginning December 31, 2022. Annual rental payments
of €40,000 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 6%; Ludwick's
incremental borrowing rate is 8%. Ludwick is unaware of the rate being used by
the lessor. At the end of the lease, Ludwick 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 residual value. Ludwick
uses the straight-line method of depreciation on similar owned equipment.
Instructions
a. Prepare the journal entry or entries, with explanations, that Ludwick should
record on December 31, 2022.
b. Prepare the journal entry or entries, with explanations, that Ludwick should
record on December 31, 2023. (Prepare the lease amortization schedule for all
five payments.)
c. Prepare the journal entry or entries, with explanations, that Ludwick should
record on December 31, 2024.
d. What amounts would appear on Ludwick's December 31, 2024, statement of
financial position relative to the lease arrangement?
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