Reference no: EM132531533
BUSI 3423 Intermediate Accounting - Yorkville University
Problem 1
Purell Corporation enters into a lease with Excel Inc., a lessor, on August 15, 2018 that does not transfer ownership or contain a bargain purchase option, and it is not for specialized equipment. Both Purell and Excel use IAS 17. The lease covers three years of the equipment's eight-year useful life, and the present value of the minimum lease payments is less than 90% of the equipment's fair value.
Required:
1) Prepare Purell's journal entry to record its August 15, 2018 annual lease payment of $31,500. Purell has a November 30th year end.
Problem 2
Lessee Corp. agreed to lease property from Lessor Corp. effective January 1, 2018, for an annual payment of $30,877, beginning January 1, 2018. The property is made up of land with a fair value of $120,000 and a two-storey office building with a fair value of $250,000 and a useful life of 25 years with no residual value. The implicit interest rate is 7.5%, the lease term is 25 years, and title to the property is transferred to Lessee at the end of the lease term.
Required:
1) Prepare the required entries made by Lessee Corp. on January 1, 2018 and at its year end of December 31, 2018. Both Lessee and Lessor use ASPE. Round all amounts to the nearest dollar.
Problem 3
The following facts are for a non-cancellable lease agreement between Alpha Corporation and Beta Corporation, a lessee:
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Inception Date
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July 1, 2018
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Annual lease payment due at the beginning of each year, starting
July 1, 2018
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$20,066.26
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Purchase option price at end of lease term reasonably certain to be
exercised by Beta
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$4,500.00
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Lease term
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5 years
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Economic life of leased equipment
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10 years
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Lessor's cost
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$60,000.00
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Fair value of asset at July 1, 2018
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$88,000.00
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Lessor's implicit rate
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9%
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Lessee's incremental borrowing rate
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9%
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The collectability of the lease payments is reasonably predictable, and there are no important uncertainties about costs that have not yet been incurred by the lessor. The lessee assumes responsibility for all executory costs. Both Beta and Alpha use IFRS 16.
Required:
1) Calculate the amount of the right-of-use asset and lease liability.
2) Discuss the nature of this lease to Beta Corporation, the lessee.
3) Discuss the nature of this lease to Alpha Corporation, the lessor.
4) Prepare a lease amortization schedule for the lease obligation using a computer spreadsheet for Beta Corporation for the five-year lease term.
5) Prepare the journal entries on the lessee's books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2018 and 2019. Beta's annual accounting period ends on December 31, and Beta does not use reversing entries
Problem 4
A lease agreement between Alpha Corporation and Beta Corporation is described in the previous Problem (Problem 3)
Provide the following for Alpha Corporation, the lessor. Required:
1) Calculate the amount of gross investment at the inception of the lease.
2) Calculate the amount of net investment at the inception of the lease.
3) Prepare the journal entries to reflect the signing of the lease and to record the receipts and income related to this lease for the years 2018, 2019, and 2020.