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Prepare the subsequent journal entries on Sheridan Corp

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Reference no: EM132774466

Question - Sheridan Corp., which uses IFRS, signs a 4-year, non-cancellable lease agreement to lease equipment from Labelle Ltd. The following information concerns the lease agreement.

1. The equipment's fair value on July 1, 2020 is $263,000.

2. The agreement requires equal rental payments of $60,500 beginning on July 1, 2020.

3. The equipment has an estimated economic life of 5 years, with an unguaranteed residual value of $86,900. Sheridan Corp. depreciates similar equipment using the straight-line method, with no residual value.

4. The lease is non-renewable. At the termination of the lease, the equipment reverts to Labelle.

5. Sheridan's incremental borrowing rate is 5% per year. The lessor's implicit rate is not known by Sheridan Corp.

6. The yearly rental payment includes $8,932.12 of executory costs related to insurance on the equipment.

Required -

A) Prepare the initial entry to reflect the signing of the lease agreement.

B) Prepare the subsequent journal entries on Sheridan Corp.'s books to record the payments and expenses related to this lease for the years 2020 and 2021 as well as any adjusting journal entries at its fiscal year ends of December 31, 2020 and 2021. Sheridan does not use reversing entries.

Reference no: EM132774466

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