/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Q.21-81FRS Question: Use the information fo... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 21: Q.21-81FRS (page 1263)

Question: Use the information for Rick Kleckner Corporation from IFRS21-7. Assume that at December 31, 2017, Kleckner made an adjusting entry to accrue interest expense of \(29,530 on the lease. Prepare Kleckner鈥檚 January 1, 2018, journal entry to record the second lease payment of \)53,920.

Rick Kleckner Corporation recorded a finance lease at \(300,000 on January 1, 2017. The interest rate is 12%. Kleckner Corporation made the first lease payment of \)53,920 on January 1, 2017. The lease requires eight annual payments. The equipment has a useful life of 8 years with no residual value. Prepare Kleckner Corporation鈥檚 December 31, 2017, adjusting entries. Assume straight-line depreciation.

Short Answer

Expert verified

Answer

Interest payable = $29,530

Step by step solution

01

 Step 1: Meaning of Finance Lease

A financial lease allows a corporation to borrow an asset for a lengthy period of time, with the lease term effectively equaling the asset's life, and the firm capitalizes on the assets in its books. A capital lease is another term for a financial lease.

02

Preparing journal entries

Date

Particular

Debit ($)

Credit ($)

Interest Payable

29,530

Lease Liability

24,390

Cash

53,920

Working Notes:

Calculation of interest payable

滨苍迟别谤别蝉迟辫补测补产濒别=(贵颈苍补苍苍肠别濒别补蝉别-尝别补蝉别辫补测尘别苍迟蝉)脳颈苍迟别谤别蝉迟谤补迟别=($300,000-$53,920)脳12%=$246,080脳12100=$29,530

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Assume that on January 1, 2017, Elmer鈥檚 Restaurants sells a computer system to Liquidity Finance Co. for \(680,000 and immediately leases the computer system back. The relevant information is as follows.

  1. The computer was carried on Elmer鈥檚 books at a value of \)600,000.
  2. The term of the noncancelable lease is 10 years; title will transfer to Elmer.
  3. The lease agreement requires equal rental payments of \(110,666.81 at the end of each year.
  4. The incremental borrowing rate for Elmer is 12%. Elmer is aware that Liquidity Finance Co. set the annual rental to ensure a rate of return of 10%.
  5. The computer has a fair value of \)680,000 on January 1, 2017, and an estimated economic life of 10 years.
  6. Elmer pays executory costs of $9,000 per year.

Instructions

Prepare the journal entries for both the lessee and the lessor for 2017 to reflect the sale and leaseback agreement. No uncertainties exist, and collectibility is reasonably certain.

Winston Industries and Ewing Inc. enter into an agreement that requires Ewing Inc. to build three diesel-electric engines to Winston鈥檚 specifications. Upon completion of the engines, Winston has agreed to lease them for a period of 10 years and to assume all costs and risks of ownership. The lease is noncancelable, becomes effective on January 1, 2017, and requires annual rental payments of \(413,971 each January 1, starting January 1, 2017.

Winston鈥檚 incremental borrowing rate is 10%. The implicit interest rate used by Ewing Inc. and known to Winston is 8%. The total cost of building the three engines is \)2,600,000. The economic life of the engines is estimated to be 10 years, with residual value set at zero. Winston depreciates similar equipment on a straight-line basis. At the end of the lease, Winston assumes title to the engines. Collectibility of the lease payments is reasonably certain; no uncertainties exist relative to unreimbursable lessor costs.

Instructions

(d) Prepare the journal entries for both the lessee and lessor to record the first rental payment on January 1, 2017.

(Lessee Accounting and Reporting) On January 1, 2017, Evans Company entered into a noncancelable lease for a machine to be used in its manufacturing operations. The lease transfers ownership of the machine to Evans by the end of the lease term. The term of the lease is 8 years. The minimum lease payment made by Evans on January 1, 2017, was one of eight equal annual payments. At the inception of the lease, the criteria established for classification as a capital lease by the lessee were met.

Instructions

(b) How should Evans account for this lease at its inception and determine the amount to be recorded?

Assume that on January 1, 2017, Kimberly-Clark Corp. signs a 10-year noncancelable lease agreement to lease a storage building from Sheffield Storage Company. The following information pertains to this lease agreement. 1. The agreement requires equal rental payments of \(72,000 beginning on January 1, 2017. 2. The fair value of the building on January 1, 2017, is \)440,000. 3. The building has an estimated economic life of 12 years, with an unguaranteed residual value of \(10,000. Kimberly-Clark depreciates similar buildings on the straight-line method. 4. The lease is nonrenewable. At the termination of the lease, the building reverts to the lessor. 5. Kimberly-Clark鈥檚 incremental borrowing rate is 12% per year. The lessor鈥檚 implicit rate is not known by Kimberly-Clark. 6. The yearly rental payment includes \)2,471 of executory costs related to taxes on the property.

Instructions

Prepare the journal entries on the lessee鈥檚 books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2017 and 2018. Kimberly-Clark鈥檚 corporate year-end is December 31.

Assume that IBM leased equipment that was carried at a cost of \(150,000 to Sharon Swander Company. The term of the lease is 6 years beginning January 1, 2017, with equal rental payments of \)30,044 at the beginning of each year. All executory costs are paid by Swander directly to third parties. The fair value of the equipment at the inception of the lease is $150,000. The equipment has a useful life of 6 years with no salvage value. The lease has an implicit interest rate of 8%, no bargain-purchase option, and no transfer of title. Collectibility is reasonably assured with no additional cost to be incurred by IBM. Prepare IBM鈥檚 January 1, 2017, journal entries at the inception of the lease.
See all solutions

Recommended explanations on Business Studies Textbooks

Strategic Analysis

Read Explanation

Business Data Analytics

Read Explanation

Project Planning & Management

Read Explanation

Sales in Business

Read Explanation

Public Relations Business Studies

Read Explanation

Actuarial Science in Business

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.