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FINANCIAL ACCOUNTING
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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Cavalier Company entered into a lease of building on January 1, 2020 with the following information: Annual rental payable at the end of each year Lease term Useful life of building Implicit interest rate PV on an ordinary annuity of 1 at 9% for 5 periods 600,000 5 years 20 years 9% 3.890 The lease contained an option for the lessee to extend the lease for a further 5 years. At the commencement date, the exercise of the extension option is not reasonably certain. After 3 years on January 1, 2023, the lessee decided to extend the lease for a further 5 years. New annual rental payable at the end of each year New implicit interest rate PV of an ordinary annuity of 1 at 12% for 5 periods PV of 1 at 12% for 2 periods PV of an ordinary of 1 at 12% for 2 periods 800,000 12% 3.605 0.797 1.690 Required: 1. Prepare a table of amortization for 2020, 2021 and 2022. 2. Prepare journal entries for 2020. 3. Remeasure the lease liability on January 1, 2023. 4. Prepare a new table of amortization from 2023 to 2029. 5. Prepare journal entries for 2023.
Transcribed Image Text:Cavalier Company entered into a lease of building on January 1, 2020 with the following information: Annual rental payable at the end of each year Lease term Useful life of building Implicit interest rate PV on an ordinary annuity of 1 at 9% for 5 periods 600,000 5 years 20 years 9% 3.890 The lease contained an option for the lessee to extend the lease for a further 5 years. At the commencement date, the exercise of the extension option is not reasonably certain. After 3 years on January 1, 2023, the lessee decided to extend the lease for a further 5 years. New annual rental payable at the end of each year New implicit interest rate PV of an ordinary annuity of 1 at 12% for 5 periods PV of 1 at 12% for 2 periods PV of an ordinary of 1 at 12% for 2 periods 800,000 12% 3.605 0.797 1.690 Required: 1. Prepare a table of amortization for 2020, 2021 and 2022. 2. Prepare journal entries for 2020. 3. Remeasure the lease liability on January 1, 2023. 4. Prepare a new table of amortization from 2023 to 2029. 5. Prepare journal entries for 2023.
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