Reference no: EM132868412

Question - Watson Co. entered into a lease arrangement for a truck on 1 April 20X2 that had the following terms:

The lease payments are $12,500 per year, payable each 1 April for four years. The lease may be renewed at the option of the lessor for a further five years for $3,600 per year.

Based on an allocation of the lease payment on relative stand-alone prices, the lease and non-lease components (maintenance) are $11,300 and $1,200 respectively.

Expected amounts to be paid under the residual value guarantee is $15,000 at the end of the first lease term and $5,000 at the end of the second lease term.

The leased asset has a useful life of ten years and a fair value of $70,000. The interest rate implicit in the lease is 7%.

Required -

1-a. Calculate the right-of-use asset.

1-b. Record the initial journal entry.

2. Lease liability amortization table for only the first four payments.

3. List the items that would appear in the lessee's SCI for the year ended 31 December 20X3.