Jennings Inc., which uses IFRS, manufactures an X-ray machine with an estimated life of 12 years and
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Instructions
Answer the following questions, rounding all numbers to the nearest dollar.
(a) Discuss the nature of this lease in relation to the lessor and calculate the amount of each of the following items:
1. Gross investment
2. Sales price
3. Unearned interest income
4. Cost of sales
(b) Prepare a 10-year lease amortization schedule for the lease obligation.
(c) Prepare all of the lessor’s journal entries for the first year.
(d) Identify the amounts to be reported on Jennings’s balance sheet, income statement, and statement of cash flows one
year after signing the lease, and prepare any required note disclosures.
(e) Assume that SNC Medical Centre’s incremental borrowing rate is 12% and that the centre knows that 10% is the rate implicit in the lease. Determine the depreciation expense that SNC will recognize in the first full year that it leases the machine.
(f) Assuming instead that the residual value is not guaranteed, what changes, if any, are necessary in parts (a) to (d) for the lessor and in part (e) for the lessee?
(g) Discuss how Jennings would have determined the classification of the lease if the company were using private enterprise GAAP for its financial reporting. GAAP
Generally Accepted Accounting Principles (GAAP) is the accounting standard adopted by the U.S. Securities and Exchange Commission (SEC). While the SEC previously stated that it intends to move from U.S. GAAP to the International Financial Reporting Standards (IFRS), the...
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Related Book For
Intermediate Accounting
ISBN: 978-0470161012
9th Canadian Edition, Volume 2
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield.
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