Western Plants Co. (Western) leased a new forklift on January 1. The lease agreement is for eight years, with an annual payment of $4,880 due at the beginning of each year. Western has the option to buy the forklift at the end of the lease for $5,500, which is the estimated market value at that time, Alternatively, the company may choose to return the forklift with no penalty. At this point, management has not decided whether to buy the asset at the end of the lease. The forklift would likely have another two years of useful life if purchased at the end of the lease term Westen had the opportunity to purchase the forklift from the dealer for $33,856 but chose to lease instead. The company would have had to borrow from the bank to finance the purchase. The interest rate at that time was 7%. The rate implicit in the lease is 7.7%. The cost of the forklift to the dealer is $25,000 Required: a) Assuming Western reports under IFRS. prepare the journal entries for the first year of the lease.

Western Plants Co. (Western) leased a new forklift on January 1. The lease agreement is for eight years, with an annual payment of $4,880 due at the beginning of each year. Western has the option to buy the forklift at the end of the lease for $5,500, which is the estimated market value at that time, Alternatively, the company may choose to return the forklift with no penalty. At this point, management has not decided whether to buy the asset at the end of the lease. The forklift would likely have another two years of useful life if purchased at the end of the lease term Westen had the opportunity to purchase the forklift from the dealer for $33,856 but chose to lease instead. The company would have had to borrow from the bank to finance the purchase. The interest rate at that time was 7%. The rate implicit in the lease is 7.7%. The cost of the forklift to the dealer is $25,000 Required: a) Assuming Western reports under IFRS. prepare the journal entries for the first year of the lease.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 3P

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