Assume that on December 31, 2019, Telco Company signs a 10-year, non-cancelable lease agreement to lease a storage building from Redfield Storage. The following information pertains to this lease agreement. - The agreement requires equal rental payments of €69,223 beginning on December 31, 2019.- Telco Company incurs initial direct costs of €5,000.- The fair value of the building on December 31, 2019, is €548,990.- The building has an estimated economic life of 12 years, a guaranteed residual value of €16,000, and an expected residual value of €10,000. Telco Company depreciates similar buildings using the straight-line method.- The lease is non-renewable. At the termination of the lease, the building reverts to the lessor.- Telco Company incremental borrowing rate is 6% per year. The lessor's implicit rate is not known by Telco Company.Instructions1. Compute the amount of the lease liability and right-of-use asset for Telco Company.2. 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 2019 and 2020. Telco Company annual accounting period ends on December 31
Assume that on December 31, 2019, Telco Company signs a 10-year, non-cancelable lease agreement to lease a storage building from Redfield Storage. The following information pertains to this lease agreement.
- The agreement requires equal rental payments of €69,223 beginning on December 31, 2019.
- Telco Company incurs initial direct costs of €5,000.
- The fair value of the building on December 31, 2019, is €548,990.
- The building has an estimated economic life of 12 years, a guaranteed residual value of €16,000, and an expected residual value of €10,000. Telco Company depreciates similar buildings using the straight-line method.
- The lease is non-renewable. At the termination of the lease, the building reverts to the lessor.
- Telco Company incremental borrowing rate is 6% per year. The lessor's implicit rate is not known by Telco Company.
Instructions
1. Compute the amount of the lease liability and right-of-use asset for Telco Company.
2. Prepare the
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