Reference no: EM133005165
Question - Q1. Crane Corporation, which uses ASPE, enters into a 6-year lease of equipment on September 1, 2020, that requires 6 annual payments of $19,000 each, beginning September 1, 2020. In addition, Crane guarantees the lessor a residual value of $8,000 at lease end. The equipment has a useful life of seven years. calculate the amount of the capital lease and prepare Crane's September 1, 2020 journal entry assuming an interest rate of 11%. To record inception of lease and first lease payment.)
Assume instead that Crane follows IFRS and that the amount expected to be paid under the residual value guarantee is $10,000. Calculate the amount of the right-of-use asset and prepare Crane's September 2020 journal entry, assuming an interest rate of 11%.
Q2. Sheridan Corporation is a machinery dealer whose shares trades on the TSX, and so it uses IFRS 16. Sheridan leased a machine to Ernst Ltd. on January 1, 2020. The lease is for a six-year period and requires equal annual payments of $24,865 at the beginning of each year. The first payment is received on January 1, 2020. Sheridan had purchased the machine for its inventory during 2019 for $100,100. Collectibility of lease payments is reasonably predictable, and no important uncertainties exist about costs that have not yet been incurred by Sheridan. Sheridan set the annual rental amount to ensure an 12% rate of return. The machine has an economic life of six years, with no residual value, and reverts to Sheridan at the termination of the lease.
Calculate the amount of each of the following: (Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 5,275.)
1. Gross investment $
enter a dollar amount
2. Unearned interest income $
enter a dollar amount
3. Net investment in the lease
Prepare all necessary journal entries for Sheridan for 2020.
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