5th Edition

ISBN: 9781307409376

Author: Doupnik

Publisher: MCG/CREATE

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Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.

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Textbook Question

Chapter 5, Problem 13EP

Monterrey Properties enters into a 3-year lease for an automobile to be used by its CEO. The agreement obligates the company to make lease payments of $600 at the end of every month of the lease term. Title to the auto does not transfer at the end of the lease. The contract does not contain a bargain purchase option. If purchased outright, the auto would cost $40,000. Its useful economic life would be six years. What expense will Monterrey Properties record in the first month of the lease under IFRS 16? Assume that the company’s borrowing rate is 6 percent.

a. No upfront lease expense.
b. $547.85.
c. $600.00
d. $648.46.

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Chapter 5 Solutions

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Solution Summary: The author identifies the option which is the expense that will be recorded by the Organization MP in the first month.

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