Kirkland Manufacturing Ltd. (lessee) has signed a lease agreement with VPN Leasing Inc. to lease some specialized manufacturing equipment. The terms of the lease are as follows: The lease is for 5 years starting January 1, 2020. - Kirkland must pay VPN $54,114 on January 1 of each year, beginning in 2020. - Equipment of this type normally has an economic life of 6 years. - VPN has concluded, based on its review of Kirkland’s financial statements, that there is no unusual credit risk in this situation. VPN will not incur any further costs with regard to this lease. - VPN purchases this equipment directly from the manufacturer at a cost of $202,025 and normally sells the equipment for $241,625. - Kirkland’s borrowing rate is 7%. - Kirkland uses the straight-line method to depreciate similar equipment. - Both Kirkland and VPN have calendar fiscal years (year end December 31), and follow ASPE. Determine the depreciation expense for Kirkland Manufacturing for 2020: Select one: a. $40,271. b. $44,375. c. $47,481. d. $48,325. e. None of the above. What would be the journal entry on VPN Leasing’s books on January 1, 2020? Select one: a. DR Lease receivable $270,570; CR Equipment Acquired for Lessee $241,625; CR Unearned Interest Income $28,945. b. DR Lease receivable $270,570; DR COGS $202,025; CR Interest revenue $28,945; CR Sales $241,625; CR Inventory $202,025. c. DR Lease receivable $270,570; DR COGS $202,025; CR Sales $241,625: CR Inventory $202,025; CR Unearned interest $28,945. d. DR Lease receivable $270,570; DR COGS $202,025; CR Equipment Acquired for Lessee 241,625; CR Inventory $202,025; CR Unearned Interest Income $28,945. e. None of the above

FINANCIAL ACCOUNTING

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ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Kirkland Manufacturing Ltd. (lessee) has signed a lease agreement with VPN Leasing Inc. to lease some specialized manufacturing equipment. The terms of the lease are as follows:

The lease is for 5 years starting January 1, 2020.

- Kirkland must pay VPN $54,114 on January 1 of each year, beginning in 2020.

- Equipment of this type normally has an economic life of 6 years.

- VPN has concluded, based on its review of Kirkland’s financial statements, that there is no unusual credit risk in this situation. VPN will not incur any further costs with regard to this lease.

- VPN purchases this equipment directly from the manufacturer at a cost of $202,025 and normally sells the equipment for $241,625.

- Kirkland’s borrowing rate is 7%.

- Kirkland uses the straight-line method to depreciate similar equipment.

- Both Kirkland and VPN have calendar fiscal years (year end December 31), and follow ASPE.

Determine the depreciation expense for Kirkland Manufacturing for 2020:

Select one:

$40,271.

$44,375.

$47,481.

$48,325.

None of the above.

What would be the journal entry on VPN Leasing’s books on January 1, 2020?

Select one:

DR Lease receivable $270,570; CR Equipment Acquired for Lessee $241,625;
CR Unearned Interest Income $28,945.

DR Lease receivable $270,570; DR COGS $202,025; CR Interest revenue $28,945; CR Sales $241,625; CR Inventory $202,025.

DR Lease receivable $270,570; DR COGS $202,025; CR Sales $241,625:
CR Inventory $202,025; CR Unearned interest $28,945.

DR Lease receivable $270,570; DR COGS $202,025;
CR Equipment Acquired for Lessee 241,625; CR Inventory $202,025;
CR Unearned Interest Income $28,945.

None of the above.

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