Reference no: EM132841879
Question 1 - Spider co-leases a fleet of vehicles to Web Co. for 5 years. The annual lease payment, due at the beginning of the year is $75,000 and the rate implicit in the lease is 8%. Web Co. records leases under IFRS 16.
Required -
a. What is the initial journal entry to set up the lease on Web Co.'s books?
Question 2 - On January 1, 2020, Hot Fuss Corp. purchased a building for $900,000, with the intention of leasing it. The building is expected to have a 20 year life, no residual value, and will be depreciated on a straight-line basis. On April 1, 2020, under a cancellable lease, Hot Fuss leased the building to Sam's Town Company for $300,000 a year ($25,000 a month) for a four year period ending March 31, 2024. Sam's Town paid $300,000 to Hot Fuss on April 1, 2020. During calendar 2020, Hot Fuss incurred $30,000 in maintenance and other executory costs under the provisions of the lease. This lease is properly classified as an operating lease by both parties.
Required -
a. How much income before income taxes will Hot Fuss Corp. report from this lease for calendar 2020?
b. How much rent expense will Sam's Town report in connection with this lease for calendar 2020?
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