
Concept explainers
On July 1,2020, the Prince of Wales, Inc. signs a 10-year non-cancellable lease agreement for a storage building
owned by Colony, Inc.The following information pertains to the lease agreement.
• Annual rental payment is P 750,000 beginning on July 1,2020. This rental payment includes P 50,000 for taxes and
insurance.
• The fair value of the building on July 1,2020 is P 4,478,000.
• The building has an estimated useful life of 12 years. Unguaranteed residual value at the end of 10 years is P
150,000.
• Interest rate implicit on the lease is 10%.
REQUIRED:
a.) At what amount should Prince of Wales record the building on July 1,2020?
b.) What is the annual
d.) Prepare the entries in the books of Prince of Wales to record the foregoing for the years 2020 and 2021. The
company adopts the calendar year as its reporting period.

Trending nowThis is a popular solution!
Step by stepSolved in 4 steps

- On January 1, 2022, ABC Company signed a 5-year non-cancelable lease for a building. This is also the period when the contract is enforceable.The terms of the lease called the ABC to make annual payments of P500,000 at the beginning of each year starting January 1, 2022. The contract provides that ABC will obtain the ownership at the end of the lease term. The building has an estimated useful life of 6 years and a P120,000 guaranteed residual value at the end of the five-year lease term. ABC has a constructive obligation to restore the machine to a condition still suitable for use at the end of the lease term. Estimated cost of restoration is P200,000. ABC incurred directly attributable cost of P90,000 to install the machine. The rate implicit in this contract is not readily determinable at the time of inception of the contract and incremental borrowing rate is at 9%. How much depreciation expense will be taken up by ABC?arrow_forwardAssume that on December 31, 2024, Kimberly-Clark Corp. signs a 10-year, non-cancelable lease agreement to lease a storage building from Sandhill Storage Company. The following information pertains to this lease agreement. 1. The agreement requires equal rental payments of $66.999 beginning on December 31, 2024. 2. The fair value of the building on December 31, 2024, is $490,629. 3. 4. 5. The building has an estimated economic life of 12 years, a guaranteed residual value of $11,000, and an expected residual value of $8,100. Kimberly-Clark depreciates similar buildings on the straight-line method. The lease is nonrenewable. At the termination of the lease, the building reverts to the lessor. Kimberly-Clark's incremental borrowing rate is 8% per year. The lessor's implicit rate is not known by Kimberly-Clark Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided) (a) Your answer is partially correct. Prepare the journal…arrow_forwardOn January 1, 2020, Flower Corp. enters into an agreement with Nicki Rentals Inc. to lease a machine from them. Both corporations adhere to ASPE. The following data relate to the agreement:(i) The term of the non-cancellable lease is three years with no renewal option. Payments of $ 543,244 are due on December 31 of each year.(ii) The fair value of the machine on January 1, 2020, is $ 1,400,000. The machine has a remaining economic life of 10 years, with no residual value. The machine reverts to the lessor upon the termination of the lease.(iii) Flower depreciates all its machinery on a straight-line basis. (iv) Flower’s incremental borrowing rate is 10%. Flower does not have knowledge of the 8% implicit rate used by Nicki. (v) Immediately aftersigning the lease, Nicki discovers that Flower is the defendant in a lawsuit that is sufficiently material to make collectability of future lease payments doubtful. From Flower’s viewpoint, what type of lease is this?…arrow_forward
- On January 1, 2019, Caswell Company signs a 10-year cancelable (at the option of either party) agreement to lease a storage building from Wake Company. The following information pertains to this lease agreement: 1. The agreement requires rental payments of $100,000 at the beginning of each year. 2. The cost and fair value of the building on January 1, 2019, is $2 million. The storage building has not been specialized for Caswell. 3. The building has an estimated economic life of 50 years, with no residual value. Caswell depreciates similar buildings according to the straight-line method. 4. The lease does not contain a renewable option clause. At the termination of the lease, the building reverts to the lessor. 5. Caswell’s incremental borrowing rate is 14% per year. Wake set the annual rental to ensure a 16% rate of return (the loss in service value anticipated for the term of the lease). Caswell knows the implicit interest rate. 6. Executory costs of $7,000 annually,…arrow_forwardAssume that on December 31, 2019, Teal Mountain Aerospace signs a 8-year, non-cancelable lease agreement to lease a hanger from Aero Field Management Company. The following information pertains to this lease agreement: 1. The agreement requires equal rental payments of $164,588 beginning on December 31, 2019. 2. The fair value of the building on December 31, 2019 is $1,114,500. The building has an estimated economic life of 10 years, a guaranteed residual value of $49,600, and an expected residual value of $34,900. Teal Mountain depreciates similar buildings on the straight-line method. 3. 4. The lease is nonrenewable. At the termination of the lease, the building reverts to the lessor. 5. Teal Mountain's incremental borrowing rate is 6% per year. The lessor's implicit rate is not known by Teal Mountain.arrow_forwardVinubhaiarrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education





