Chapter 21, Problem 9ICA

In your audit of Entity A, you noted that the Rent expense account has an ending balance of $1,100,000 at December 31, 2021. $100,000 of this pertains to the maintenance costs paid by the Lessor on behalf of Entity A, which was later paid by Entity A. The lease commenced on January 1, 2021. The following are the terms of agreement. Terms of the Lease Agreement Lease term 8 years Useful life 10 years Annual rental payments due at the end of the year $1,000,000 Residual value at the end of useful life $500,000 Bargain purchase option 200,000 Maintenance costs reimbursed to lessor 100,000 8% Implicit rate Note: There is reasonable certainty that the purchase option will be exercised by Entity A at the end of the lease term Required: 1. Compute for the (a) initial lease liability and the cost of the right-of-use asset, (b) Depreciable amount to be used and depreciation expense (c) Carrying amount of the lease liability and the right- of-use asset at the end of the year. 2. Show adjusting…

Required Information [The following information applies to the questions displayed below.] A company incurred the following transactions: a. Recorded the financing (capital) lease of a truck. The present value of the lease payments is $68,000; the total of the lease payments to be made is $81,000. b. Recorded the company's payroll for the month. Gross pay was $7,800, net pay was $5,400, and various withholding liability accounts were credited for the difference. c. Issued $24,000 of bonds payable at a price of 103. d. Adjusted the estimated liability under a warranty program by reducing previously accrued warranty expense by $4,500. e. Retired $14,000 face amount of bonds payable with a carrying value of $13,500 by calling them at a redemption value of 101. f. Accrued estimated annual health care costs for retirees: $19,500 is expected to be paid within a year, and $158,000 is expected to be paid in more than a year. Required: a-1. Show the effect, if any, of each…

Fields Finance Ltd. (FFL), a leasing company that reports under ASPE, is in the process of preparing its financial statements for the year ended June 30, Year 1. The following leases were entered into: Lease 1: On February 1, Year 1, the company entered into a lease contract in respect of plant and machinery for a production line. The details are as follows: 12 quarterly rental payments $ 11,000 (first payment on April 30, Year 1) Period of contract 3 years (from February 1, Year 1) $200,000 Fair value of equipment (cost to FFL) Guaranteed residual value – end of lease $ 60,000 term Estimated residual value – end of useful $ 20,000 life Economic life 8 years 12% Implicit rate Lease 2: On April 1, Year 1, the company entered into a lease contract in respect of a fleet of distribution vehicles. This lease involves the following payments: Initial rental payment 10 quarterly rental payments Period of contract Fair value of equipment (cost to FFL) $190,000 Unguaranteed residual value – end…