Question

n January 1, 2020, Crane Corp., which uses IFRS, signs a 10-year, non-cancellable lease agreement to lease a specialty lathe from Liu Inc. The following information concerns the lease agreement.

1.		The agreement requires equal rental payments of $95,654 beginning on January 1, 2020.
2.		The lathe’s fair value on January 1, 2020, is $610,000.
3.		The lathe has an estimated economic life of 12 years, with an unguaranteed residual value of $16,000. Crane Corp. depreciates similar equipment using the straight-line method.
4.		The lease is non-renewable. At the termination of the lease, the lathe reverts to the lessor.
5.		Crane’s incremental borrowing rate is 11% per year. The lessor’s implicit rate is not known by Crane Corp.
6.		The yearly rental payment includes $2,339.70 of executory costs related to insurance on the lathe.

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Assume that Crane’s fiscal year end is May 31. Prepare the journal entries on Crane Corp.’s books to reflect the signing of the lease agreement and to record payments and expenses related to this lease for the calendar years 2020 and 2021. Crane does not prepare reversing entries. (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 2 decimal places, e.g. 52.75.)

Date	Account Titles and Explanation	Debit	Credit
1/1/20	Insurance Expenses	enter a debit amount	enter a credit amount
	Right of asset	enter a debit amount	enter a credit amount
	Prepaid Insurance	enter a debit amount	enter a credit amount
	cash	enter a debit amount	enter a credit amount
	lease liability	enter a debit amount	enter a credit amount
	(To record lease payment.)
5/31/20	Depreciation expenses	enter a debit amount	enter a credit amount
	Accumulated Depreciation- Right Of Asset	enter a debit amount	enter a credit amount
	(To record depreciation expense.)
5/31/20	Interest expenses	enter a debit amount	enter a credit amount
	Lease Liabilty	enter a debit amount	enter a credit amount
	(To record interest.)
12/31/20	Insurance Expenses	enter a debit amount	enter a credit amount
	prepaid insurance	enter a debit amount	enter a credit amount
	(To record expired insurance.)
1/1/21	Insurance Expenses	enter a debit amount	enter a credit amount
	Interest expenses	enter a debit amount	enter a credit amount
	prepaid insurance	enter a debit amount	enter a credit amount
	lease liability	enter a debit amount	enter a credit amount
	cash	enter a debit amount	enter a credit amount
	(To record lease payment.)
5/31/21	depreciation expenses	enter a debit amount	enter a credit amount
	Accumulated Depreciation	enter a debit amount	enter a credit amount
	(To record depreciation expense.)
5/31/21	interest expenses	enter a debit amount	enter a credit amount
	lease liability	enter a debit amount	enter a credit amount
	(To record interest.)
12/31/21	insurance expenses	enter a debit amount	enter a credit amount
	prepaid insurance	enter a debit amount	enter a credit amount
	(To record expired insurance.)

Answer 1