At the beginning of current year, an entity leased an equipment from a lessor with the following pertinent information: Annual rental payable at the end of each year 1,000,000 Initial direct cost paid 400,000 Lease bonus paid to lessor before commencement of the lease 300,000 Lease incentive received 100.000 Discounted amount of restoring building as required by contract 700,000 Leasehold improvement 200,000 Purchase option that is reasonably certain to be exercised 500,000 Lease term 5 years Useful life of equipment 8 years Implicit interest rate 10% PV of an ordinary annuity of 1 for 5 periods at 10% 3.79 Pres

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter20: Accounting For Leases

Section: Chapter Questions

Problem 6P: Sales-Type Lease with Unguaranteed Residual Value Lessor Company and Lessee Company enter into a...

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At the beginning of current year, an entity leased an equipment from a lessor with the following pertinent information: Annual rental payable at the end of each year 1,000,000 Initial direct cost paid 400,000 Lease bonus paid to lessor before commencement of the lease 300,000 Lease incentive received 100.000 Discounted amount of restoring building as required by contract 700,000 Leasehold improvement 200,000 Purchase option that is reasonably certain to be exercised 500,000 Lease term 5 years Useful life of equipment 8 years Implicit interest rate 10% PV of an ordinary annuity of 1 for 5 periods at 10% 3.79 Present value of 1 for 5 periods at 10% 0.62 What is the initial lease liability? What is the cost of the right of use asset? What is the interest expense for the current year? What is the lease liability at year-end? What is the depreciation of the right of use asset for current year?

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