Question

The following facts are for a non-cancellable lease agreement between Sheridan Corporation and Russell Corporation, a lessee:

Inception date		July 1, 2020
Annual lease payment due at the beginning of each year, starting July 1, 2020		$	20,190.08
Bargain purchase option price at end of lease term reasonably certain to be exercised by Russell		$	4,000.00
Lease term			5 years
Economic life of leased equipment			10 years
Lessor’s cost		$	52,200.00
Fair value of asset at July 1, 2020		$	88,200.00
Lessor’s implicit rate			9%
Lessee’s incremental borrowing rate			9%

The collectibility 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 Russell and Sheridan use IFRS 16.

Click here to view the factor table PRESENT VALUE OF 1.
Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE.

Calculate the amount of the right-of-use asset and lease liability. (Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 2 decimal places, e.g. 52.75.)

Amount

$enter a dollar amount

Prepare a lease amortization schedule for the lease obligation using a computer spreadsheet for Russell Corporation for the five-year lease term. (Round answers to 2 decimal places, e.g. 52.75.)

Russell Corporation (Lessee) Lease Amortization Schedule
Date		Annual Lease Payment Plus BPO		Interest (9%) on Unpaid Obligation		Reduction of Lease Obligation		Balance of Lease Obligation
7/1/20								$enter a dollar amount
7/1/20		$enter a dollar amount				$enter a dollar amount		enter a dollar amount
7/1/21		enter a dollar amount		$enter a dollar amount		enter a dollar amount		enter a dollar amount
7/1/22		enter a dollar amount		enter a dollar amount		enter a dollar amount		enter a dollar amount
7/1/23		enter a dollar amount		enter a dollar amount		enter a dollar amount		enter a dollar amount
7/1/24		enter a dollar amount		enter a dollar amount		enter a dollar amount		enter a dollar amount
6/30/25		enter a dollar amount		enter a dollar amount		enter a dollar amount		enter a dollar amount
		$enter a total amount		$enter a total amount		$enter a total amount

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 2020 and 2021. Russell’s annual accounting period ends on December 31, and Russell does not use reversing entries. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 2 decimal places, e.g. 52.75.)

Date	Account Titles and Explanation	Debit	Credit
7/1/20	enter an account title to record inception and payment of lease	enter a debit amount	enter a credit amount
	enter an account title to record inception and payment of lease	enter a debit amount	enter a credit amount
	enter an account title to record inception and payment of lease	enter a debit amount	enter a credit amount
	(To record inception and payment of lease.)
12/31/20	enter an account title to record interest	enter a debit amount	enter a credit amount
	enter an account title to record interest	enter a debit amount	enter a credit amount
	(To record interest.)
12/31/20	enter an account title to record depreciation expense	enter a debit amount	enter a credit amount
	enter an account title to record depreciation expense	enter a debit amount	enter a credit amount
	(To record depreciation expense.)
7/1/2021	enter an account title to record lease payment	enter a debit amount	enter a credit amount
	enter an account title to record lease payment	enter a debit amount	enter a credit amount
	enter an account title to record lease payment	enter a debit amount	enter a credit amount
	(To record lease payment.)
12/31/2021	enter an account title to record interest	enter a debit amount	enter a credit amount
	enter an account title to record interest	enter a debit amount	enter a credit amount
	(To record interest.)
12/31/2021	enter an account title to record depreciation expense	enter a debit amount	enter a credit amount
	enter an account title to record depreciation expense	enter a debit amount	enter a credit amount
	(To record depreciation expense.)

Answer 1