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Chapter 21: 11IFRS_b (page 1264)

A lease agreement between Lennox Leasing Company and Gill Company is described in IFRS21-10. Refer to the data in IFRS21-10 and do the following for the lessor.

Inception date: May 1, 2017

Annual lease payment due at the beginning of each year, beginning with May 1, 2017: \(18,829.49

Bargain-purchase option price at end of lease term: \)4,000.00

Lease term: 5 years

Economic life of leased equipment: 10 years

Lessor’s cost: \(65,000.00; fair value of asset at May 1, 2017, \)81,000.00

Lessor’s implicit rate: 10%; lessee’s incremental borrowing rate 10%

The lessee assumes responsibility for all executory costs.

Instructions

(Round all numbers to the nearest cent.)

(b) Prepare a lease amortization schedule for Lennox Leasing Company for the 5-year lease term.

Short Answer

Expert verified

Answer

The total reduction of the lease liability is $81,000.

Step by step solution

01

Meaning of Lease Asset

Assets rights that are transferred by the lessor to the lessee by mutual agreementare term leased assets. The leased asset is used by the lessee and rental payments are made in accordance with the lease agreement.

02

Preparing lease amortization schedule

LENNOX LEASING COMPANY (LESSOR)
Lease Amortization Schedule

Date

Annual Lease Payment Plus

BPO

Interest (10%) in Liability

Reduction of Lease Liability

Lease Liability

5/1/17

$81,000.000

5/1/17

18,829.49

$ 0

$18,829.49

62,170.51

5/1/18

18,829.49

6,217.05

12,612.44

49,558.07

5/1/19

18,829.49

4,955.81

13,873.68

35,684.39

5/1/20

18,829.49

3,568.44

15,261.05

20,423.34

5/1/21

18,829.49

2,042.33

16,787.16

3,636.18

4/30/22

4,000.00

363.82

3,636.18

0

$98,147.45

$17,147.45

$81,000.00

Note: There is a rounding error in interest (10%) in liability on 4/30/22.

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Most popular questions from this chapter

What is the nature of a “sale-leaseback” transaction?

The following are four independent situations.

(a) On December 31, 2017, Zarle Inc. sold computer equipment to Daniell Co. and immediately leased it back for 10 years. The sales price of the equipment was \(520,000, its carrying amount is \)400,000, and its estimated remaining economic life is 12 years. Determine the amount of deferred revenue to be reported from the sale of the computer equipment on December 31, 2017.

The residual value is the estimated fair value of the leased property at the end of the lease term.

(a) Of what significance is (1) an unguaranteed and (2) a guaranteed residual value in the lessee’s accounting for a capitalized-lease transaction?

Lessor Computations and Entries, Sales-Type Lease with Guaranteed Residual Value) Amirante Inc. manufactures an X-ray machine with an estimated life of 12 years and leases it to Chambers Medical Center for a period of 10 years. The normal selling price of the machine is \(411,324, and its guaranteed residual value at the end of the noncancelable lease term is estimated to be \)15,000. The hospital will pay rents of \(60,000 at the beginning of each year and all maintenance, insurance, and taxes. Amirante Inc. incurred costs of \)250,000 in manufacturing the machine and $14,000 in negotiating and closing the lease. Amirante Inc. has determined that the collectibility of the lease payments is reasonably predictable, that there will be no additional costs incurred, and that the implicit interest rate is 10%.

Instructions

(a) Discuss the nature of this lease in relation to the lessor and compute the amount of each of the following items.

(3) Cost of sales.

Lessor Computations and Entries, Sales-Type Lease with Guaranteed Residual Value) Amirante Inc. manufactures an X-ray machine with an estimated life of 12 years and leases it to Chambers Medical Center for a period of 10 years. The normal selling price of the machine is \(411,324, and its guaranteed residual value at the end of the noncancelable lease term is estimated to be \)15,000. The hospital will pay rents of \(60,000 at the beginning of each year and all maintenance, insurance, and taxes. Amirante Inc. incurred costs of \)250,000 in manufacturing the machine and $14,000 in negotiating and closing the lease. Amirante Inc. has determined that the collectibility of the lease payments is reasonably predictable, that there will be no additional costs incurred, and that the implicit interest rate is 10%.

Instructions

(a) Discuss the nature of this lease in relation to the lessor and compute the amount of each of the following items.

  1. Lease receivable at inception of the lease.
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