Reference no: EM132490586
On January 1, 2020, Coronado Ltd. entered into an agreement to lease a truck from Flint Ltd. Both Coronado, and Flint use IFRS 16. The details of the agreement are as follows:
Carrying value of truck for Flint Ltd. ------------------------------- $20,511
Fair value of truck ------------------------------------------------------ $20,511
Economic life of truck ---------------------------------------------------5 years
Lease term ---------------------------------------------------------------- 3 years
Rental payments (at beginning of each month) ------------------ $610
Executory costs included in rental payments each month for insurance --- $18
Incremental borrowing rate for Coronado Ltd. -------------------------------------12%
Coronado Ltd. expects to pay Flint Ltd. $3,590 under a residual value guarantee for the truck.
Additional information:
Point 1: There are no abnormal risks associated with the collection of lease payments from Coronado.
Point 2: There are no additional unreimbursable costs to be incurred by Flint in connection with the leased truck.
Point 3: At the end of the lease term, Flint sold the truck to a third party for $3,310, which was the truck's fair value at December 31, 2022. Coronado paid Flint the difference between the guaranteed residual value of $3,590 and the proceeds obtained on the resale.
Point 4: Coronado knows the interest rate that is implicit in the lease.
Point 5: Coronado knows the amount of executory costs included in the minimum lease payments.
Point 6: Coronado uses straight-line depreciation for its trucks with the residual value guarantee of $3,590 for the leased truck.
Question 1: Prepare the journal entries that Flint would make on January 1, 2020, and the adjusting journal entries at December 31, 2020, to record the annual interest income from the lease arrangement, assuming that Flint has a December 31 fiscal year end. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.)