User Account

All Pages

How endeavour ltd would account for such costs

Assignment Help Financial Accounting
Reference no: EM132549874

On 1 July 2016, Endeavour Ltd entered into a five-year lease agreement with Fast Finance Ltd for an item of machinery. The lease agreement requires Endeavour Ltd to make five annual lease payments of $15,000 per year paid at the beginning of each year (in advance: annuity due) on 1 July with the first payment on 1 July 2016.

At the end of the lease term, Endeavour Ltd will return the item of machinery to Fast Finance Ltd. The item of machinery will then be sold by Fast Finance Ltd. The residual value of the item of machinery at the end of the lease term is $10,000 of which $7,500 has been guaranteed by Endeavour Ltd. At the commencement of the lease, Endeavour Ltd estimates that, at the end of the lease term, the item of machinery will realise $12,000 when it is sold.

The interest rate implicit in the lease is not readily determinable. Endeavour Ltd's incremental borrowing rate is 5% per annum which reflects the fixed rate at which Endeavour Ltd could borrow an amount similar to the value of the right-of-use asset, in the same currency, for a five-year term, and with similar collateral.

Required

Question (a) Determine the amounts at which Endeavour Ltd would recognise the right-ofuse asset and the lease liability on 1 July 2016.

Question (b) Explain the term 'initial direct costs' and how Endeavour Ltd would account for such costs.

Question (c) Prepare the journal entries to account for the lease by Endeavour Ltd between 1 July 2016 and 1 July 2017.

Question (d) On 30 June 2018, Endeavour Ltd revises its estimate of the amount that the item of machinery is expected to realise when it is sold at the end of the lease term. How would Endeavour Ltd account for a revised amount of $5,000? What if the revised amount was $9,000?

Reference no: EM132549874

Questions Cloud

How much income does Clown have from this distribution : Circus distributes cash of $75,000 to Clown on the last day of the tax year. How much income does Clown have from this distribution
Define unity of command : Please define "unity of command", explain the methods to improve horizontal information sharing
What is the weighted-average number of shares calculated : Cooren Ltd has 1 520 000 ordinary shares, What is the weighted-average number of shares calculated in accordance with AASB 133?
What is the most effective use of power : What is the most effective use of power that you have seen used in your professional or personal lives
How endeavour ltd would account for such costs : Determine the amounts at which Endeavour Ltd would recognise right-ofuse asset and lease liability on 1 July 2016. How Endeavour Ltd would account for such cost
Disaster risk management in indonesia : How will the Sendai Framework support disaster risk management in Indonesia at the local level incorporating a more people-centered approach?
Setup for failure and considered vulnerable communities : Are communities with poor local hazard mitigation planning setup for failure and considered vulnerable communities?
Created a policy brief presentation : Created a policy brief presentation that has theoretically caught the attention of a lawmaker. He/she would like ore information about this
Does mean that the earnings variable four times as important : Does this mean that the earnings variable is 4 times as important in predicting bankruptcy as the assets turnover variable? Explain

Reviews

Write a Review

Financial Accounting Questions & Answers

  Who are the stakeholders affected by their proposals

Bartlet Financial Services Company holds a large portfolio of debt and stock securities as an investment. The total fair value of the portfolio at December 31, 2012, is greater than total cost. Some securities have increased in value and others have ..

  Provide journal entries to account for the revaluation

Provide journal entries to account for the revaluation. An item of depreciable machinery is acquired on 1 July 2016 for $280 000.

  Santos company is starting its advertising campaign for

santos company is starting its advertising campaign for next year and has prepared the subsequent budget data based on

  Identify two control weaknesses in family support center

The Family Support Center is a small charitable organization. It has only four full-time employees: two staff, an accountant, and an office manager. Identify two major control weaknesses in the Family Support Center’s cash receipts procedures. For ea..

  Actual manufacturing overhead costs

Traves Corporation incurred $69,000 of actual Manufacturing Overhead costs during October. During the same period, the Manufacturing Overhead applied to Work in Process was $68,000. The journal entry to record the application of Manufacturing Overhea..

  Compute the cost of the goodwill purchased by potters

Potters has acquired several other companies. Assume that Potters purchased Kittery for $6,000,000 cash. The book value of Kittery’s assets is $12,000,000 (market value, $15,000,000), and it has liabilities of $11,000,000 (market value, $11,000,000)...

  What are required and expected rates of return of both stock

What are the required and expected rates of returns of both stocks? Which stock would you recommend purchasing or selling? Explain.

  Find which transactions would cause a change in the amount

Which transactions would cause a change in the amount of a company's working capital? Selling merchandise at a price above its cost

  Involved in making capital investment decisions

Some nonfinancial factors included in capital investment decisions are more important now than they were 20-25 years ago. Give some examples of the types of nonfinancial factors that managers would consider more important in today's capital investmen..

  Compute the monthly merchandise purchases budgets

Compute the Monthly merchandise purchases budgets. Monthly selling expense budgets. Monthly general and administrative expense budgets.

  Calculate the amount of sales revenue

Last year, Flynn Company reported a net income of $70,000 when sales totaled $520,000 and the contribution margin ratio was 40%. If fixed costs increase by $10,000 for the coming year, calculate the amount of sales revenue Flynn Company would need to..

  Income statement approach in estimating uncollectibles

Peterson Company uses the income statement approach in estimating uncollectibles. At the end of the year, Peterson Corporation estimates that 3% of its credit sales of $500,000 will be uncollectible. Allowance for Doubtful Accounts has a debit balanc..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd