Reference no: EM132972117
Not Ordinary Drones (NOD) , Inc., a lessor, leased a drone to Worldz Information Network, Ltd., [WIN], a lessee, on January 1, 2019. The following information relates to the leased asset and the lease agreement:
Fair value of leased drone $Undisclosed
Lease 10 years
Useful life 15 years
Payment Due January 1
Payment frequency Annual
Annual Instalments starting January 1, 2019 $33,000
Estimated residual value at end of the lease, [as stated in the problem] $23,600
Interest rate implicit in the lease [unknown to the lessee] 7%
Interest rate incremental to the lessee 8%
Ownership of drone reverts to lessor at end of lease term
Year end for both companies December 31
Amortization method Straight line
Accounting standards used - NOD ASPE
WIN
Problem 1: The journal entry prepared by WIN to record the lease contract on January 1, 2019 would be
a. DEBIT-Right of Use Assets [$342,000]; CREDIT-Obligation Under Capital Lease [$342,000].
b. DEBIT-Right of Use Assets [$250,079]; CREDIT-Obligation Under Capital Lease [$250,079].
c. DEBIT-Right of Use Assets [$239,147]; CREDIT-Cash [$239,147].
d. DEBIT-Right of Use Assets [$330,000]; CREDIT-Obligation Under Capital Lease [$330,000].
e. DEBIT-Right of Use Assets [$239,147]; CREDIT-Obligation Under Capital Lease
Problem 2: What would be the amount of interest expense for 2019 if the residual value was guaranteed by the lessee? [Round to the nearest dollar]
a. $17,366.
b. $20,799.
c. $26,400.
d. $16,740.
e. $19,032.
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