Question

In: Accounting

On January 1, 2020, Agent Z Company entered into a lease with Overlord Company for a...

On January 1, 2020, Agent Z Company entered into a lease with Overlord Company for a new equipment.
The lease stipulates that annual payments of P1,000,000 will be made for five years starting December
31, 2020.
Agent Z Company guaranteed a residual value of P474,060 at the end of the 5-year period. The
equipment will revert to the lessor at the lease expiration. The implicit rate for the lease is 16% after
considering the guaranteed residual value. The economic life of the equipment is 10 years.
Questions:
1. How much is right-of-use asset account on January 1, 2020?
2. The carrying amount of lease liability on December 31, 2021 is
3. What is the carrying amount of right-of-use asset on December 31, 2022?
4. How much is the gain or loss on finance lease to be recognized at the end of the lease term?

Solutions

Expert Solution

Computation of Right to use Asset as on January 1, 2020

Annual Payments Rate PV Factor Amount Computation
1000000 16% 0.8621 862100 1000000 X 0.8621
1000000 16% 0.7432 743200 1000000 X 0.7432
1000000 16% 0.6407 640700 1000000 X 0.6407
1000000 16% 0.5523 552300 1000000 X 0.5523
1474060 16% 0.4761 701800 1474060 X 0.4761
3500100

1. Right to use asset as on January 1 2020 =

3500100

2. Carrying amoung of lease liability on December 31st 2021 = 2549735

A B C D E
Annual payment Outstanding on Beginning of the year Interest (B*16%) Adjustment against Lease liability (A-C) Closing Lease liability (B-D)
1000000 3500100 560015.9946 439984.0054 3060116
1000000 3060116 489618.5537 510381.4463 2549735
1000000 2549735 407957.5223 592042.4777 1957692
1000000 1957692 313230.7258 686769.2742 1270923
1474060 1270923 203347.642 1270712.358 210

3. Carrying amount of right of use asset on December 31.2020 = 1957692

4. Gain or loss recognised in the lease term = 0/-

ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

On January 1, 2020, Winthrop Inc. entered into a lease agreement to lease equipment: 5-year lease...
On January 1, 2020, Winthrop Inc. entered into a lease agreement to lease equipment: 5-year lease term Annual lease payments are $10,000 First payment is on January 1, 2020 and the other payments are on 31 December each year At the end of the lease the leased asset will revert to the lessor The asset’s economic life is estimated at 10 years Winthrop could have obtained equivalent financing from its bank at a rate of 5% Winthrop’s fiscal year end...
On January 1, 2020, Winthrop Inc. entered into a lease agreement to lease equipment: 5-year lease...
On January 1, 2020, Winthrop Inc. entered into a lease agreement to lease equipment: 5-year lease term Annual lease payments are $10,000 First payment is on January 1, 2020 and the other payments are on 31 December each year At the end of the lease the leased asset will revert to the lessor The asset’s economic life is estimated at 10 years Winthrop could have obtained equivalent financing from its bank at a rate of 5% Winthrop’s fiscal year end...
On January 1, 2020, Winthrop Inc. entered into a lease agreement to lease equipment: 5-year lease...
On January 1, 2020, Winthrop Inc. entered into a lease agreement to lease equipment: 5-year lease term Annual lease payments are $10,000 First payment is on January 1, 2020 and the other payments are on 31 December each year At the end of the lease the leased asset will revert to the lessor The asset’s economic life is estimated at 10 years Winthrop could have obtained equivalent financing from its bank at a rate of 5% Winthrop’s fiscal year end...
On January 1, 2020, Winthrop Inc. entered into a lease agreement to lease equipment: 5-year lease...
On January 1, 2020, Winthrop Inc. entered into a lease agreement to lease equipment: 5-year lease term Annual lease payments are $10,000 First payment is on January 1, 2020 and the other payments are on 31 December each year At the end of the lease the leased asset will revert to the lessor The asset’s economic life is estimated at 10 years Winthrop could have obtained equivalent financing from its bank at a rate of 5% Winthrop’s fiscal year end...
On 1 January 2020, Lessee Ltd entered into a two-years lease with Lessor Ltd for a...
On 1 January 2020, Lessee Ltd entered into a two-years lease with Lessor Ltd for a equipment. The contract contains an option to extend the lease term for a further a year. Lessee Ltd ascertained that it is reasonably certain to exercise this option. The equipment has a useful economic life of 10 years. Lease payments are $25,000 per year for the initial term and $45,000 per year for the period when the option is exercised. All payments are due...
On January 1, 2020, Galactus Corp. (lessor) entered into a noncancellable lease agreement with Blade Corp....
On January 1, 2020, Galactus Corp. (lessor) entered into a noncancellable lease agreement with Blade Corp. (lessee) for machinery which was carried in Galactus’s accounting records at $2,265,000 and had a fair value of $2,400,000. Minimum lease payments under the lease agreement, which expires on December 31, 2029, total $3,550,000. Payments of $355,000 are due each January 1. The first payment was made on January 1, 2020 when the lease agreement was finalized. The interest rate of 10% which was...
On July 1, 2020, AMC entered into a lease agreement to lease specialty equipment for a...
On July 1, 2020, AMC entered into a lease agreement to lease specialty equipment for a 6-year term. Annual lease payments are $20,000, payable at the beginning of each lease year (July 1). At the end of the lease the leased asset will revert to the lessor. The asset’s economic life is estimated at 7 years. AMC could have obtained equivalent financing from its bank at a rate of 14%. AMC’s fiscal year end is December 31. AMC uses straight-line...
Question 4 On 1 January 2020, Lessee Ltd entered into a two-years lease with Lessor Ltd...
Question 4 On 1 January 2020, Lessee Ltd entered into a two-years lease with Lessor Ltd for a equipment. The contract contains an option to extend the lease term for a further a year. Lessee Ltd ascertained that it is reasonably certain to exercise this option. The equipment has a useful economic life of 10 years. Lease payments are $25,000 per year for the initial term and $45,000 per year for the period when the option is exercised. All payments...
Question 4 On 1 January 2020, Lessee Ltd entered into a two-years lease with Lessor Ltd...
Question 4 On 1 January 2020, Lessee Ltd entered into a two-years lease with Lessor Ltd for a equipment. The contract contains an option to extend the lease term for a further a year. Lessee Ltd ascertained that it is reasonably certain to exercise this option. The equipment has a useful economic life of 10 years. Lease payments are $25,000 per year for the initial term and $45,000 per year for the period when the option is exercised. All payments...
On January 1, 2020, the company signed on a lease contract which qualifies as finance lease....
On January 1, 2020, the company signed on a lease contract which qualifies as finance lease. It calls for annual payments of $52,538 at 1/1/2020 for the first payments, and 12/31 of each year thereafter over a six-year lease term. The present value of total lease payment is $280,000 under 5% annual interest rate. Make journal entries for each of following dates, including any interest or amortization expenses. January 1, 2020, signs the lease contract and makes the first payment...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT