Exam 18: Accounting for Leases

IFRS does not classify leases as operating and financing and does not distinguish two types of leases. Rather, lessee accounting treatment is the same for all leases under IFRS.

Based on the above information, prepare Nace Manufacturing's journal entries at the commencement of the lease, January 1 and December 31, 2019 payments, and amortization of the right-of-use asset.

Wynn Manufacturing On January 1, 2019, Wynn Manufacturing leased a floor of a building for use in its North American operations from Easymoney Bank. The 9-year, noncancellable lease requires annual lease payments of $12,000, beginning January 1, 2019, and at each December 31 thereafter through 2026. The lease payment includes costs related to property taxes of $3,000. They also include payments for common area maintenance. The observable standalone price for the lease (including the property taxes) is $16,000 and the observable standalone price for the common area maintenance is $2,000. In addition, Wynn agrees to pay insurance on the floor of the building. Wynn pays the insurance each year when it receives an invoice from Easymoney Bank for the insurance amount. On December 15, 2019, Wynn was billed and paid $1,500 for this insurance. Wynn does not make the election to account for each separate lease component, along with its associated nonlease components, as a single lease component. The lease agreement does not transfer ownership, nor does it contain a purchase option. The floor of the building has a fair value of $85,000 and an estimated remaining life of 10 years. Easymoney Bank's implicit rate of 11% is known to Wynn. Round percentages to two decimal places. -Based on the above information, create the Journal Entry for the lessee on the lease commencement date.

Northern Equipment leases cooling towers to Warmup Corporation. The equipment is not specialized and is delivered on January 1, 2019. The fair value of the equipment is $180,000. The cost of the equipment to Northern is $170,000 and the expected life of the testing equipment is 8 years. At the end of the useful life, it is expected that the equipment will have a residual value of $20,000, although the lessee guarantees only $15,000. Northern incurs initial direct costs of $20,000, which they elect to expense. The lease term for the equipment is 8 years, with the first payment due upon delivery, and seven subsequent annual payments beginning on December 31, 2019 and ending on December 31, 2025. Northern's implicit rate is 8% and they expect that collection of the $27,000 payments is probable. The lease is properly classified as a sales-type lease. What is the amount of the lease receivable? (Round any present value calculations to the nearest dollar, and round any percentages two decimal places, X.XX%.)

Assuming that this is classified as an operating lease, create an amortization table for periodic interest and reduction in the liability. Periodic Interest and Reduction in the Liability Reduction in Payment Interest Lease Liability Balance Lease commencement: 1/1/2019 1/1/2020 1/1/2021 1/1/2022 1/1/2023

Northern Equipment Northern Equipment leases cooling towers to Warmup Corporation. The equipment is not specialized and is delivered on January 1, 2019. The fair value of the equipment is $180,000. The cost of the equipment to Northern is $170,000 and the expected life of the testing equipment is 8 years. At the end of the useful life, it is expected that the equipment will have a residual value of $20,000, although the lessee guarantees only $15,000. Northern incurs initial direct costs of $20,000, which they elect to expense. The lease term for the equipment is 8 years, with the first payment due upon delivery, and seven subsequent annual payments beginning on December 31, 2019 and ending on December 31, 2025. Northern's implicit rate is 8% and they expect that collection of the $29,002 payments is probable. The lease is properly classified as a sales-type lease. -What is the amount of the lease receivable?

In subsequent measurement of a direct financing lease, the lessor computes interest revenue using the ________ method. The lessor allocates lease payments first to cover the ________ and then to ________ the NIL-DF. The interest revenue, which is reported on the income statement, is the amount that produces a constant periodic discount rate on the remaining balance of the NIL-DF.

Elton Electronics leases testing equipment to Startup Corporation. The equipment is not specialized and is delivered on January 1, 2019. The fair value of the equipment is $78,000. The cost of the equipment to Elton is $73,000 and the expected life of the testing equipment is 8 years. Elton incurs initial direct costs of $10,000, which they elect to expense. The lease term for the equipment is 8 years, with the first payment due upon delivery, and seven subsequent annual payments beginning on December 31, 2019 and ending on December 31, 2025. Elton's implicit rate is 12% and they expect that collection of the $10,500 lease payments is probable. What is the principal balance in the Net Investment in Lease - Sale Type account after the first payment?