River Ltd enters into a non-cancellable lease agreement with Machinery Ltd on 1 January 2017. River Ltds
Question:
River Ltd enters into a non-cancellable lease agreement with Machinery Ltd on 1 January 2017. River Ltd’s financial year ends on 31 December. The lease consists of the following:
There are to be 5 annual payments of $90,000, the first being made on 31 December 2017. Included within the $90,000 lease payment is an amount of $10,000 representing payment to the Lessor Machinery Ltd for the insurance and maintenance of the equipment. The equipment is to be depreciated on a straight-line basis.
a) Verify the implicit rate of interest is correct against Fair Value.
b) Develop a table that shows the payment schedule to determine the interest expense for each year.
c) Prepare the journal entries for River Ltd. using the Net Method at the following date.
• 1/1/2017
• 31/12/2017
• 31/12/2018
Intermediate Accounting Reporting and Analysis
ISBN: 978-1285453828
2nd edition
Authors: James M. Wahlen, Jefferson P. Jones, Donald Pagach