Required 1. Determine the PV of minimum lease rental payment.  2. Prepare the journal entries for FRM Ltd (The lessee) using the Net method for the following  a) Transfer of control b) Payment of annual payments for 2015 and 2016.

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

FRM Ltd acquired an item of equipment and enters into a non -cancellable lease agreement with FEN Equipment LTd on 1January 2015. The lease consists of the following:

  • Date of inception.      1/1/15
  • Duration of Lease       4 years
  • Life of Leased asset.   5 years
  • Lease payments (annual)  $550000(annual) which includes $80000 for Maintenance and insurance costs per annum
  • Guaranteed residual value (Added to final payment).                  $190000
  • Interest rate.                       7%

Formula for PV of $1/(1+k)n

Formula for present value of annuity of $1 per period for n periods= 1-1/(1+k)/k

Where k is the discount rate expressed in decimal

Required

1. Determine the PV of minimum lease rental payment. 

2. Prepare the journal entries for FRM Ltd (The lessee) using the Net method for the following 

a) Transfer of control

b) Payment of annual payments for 2015 and 2016.

 

 

 

Expert Solution
steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Lease accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar 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