Pucci Corporation is a machinery dealer whose shares trades on the TSX, and so uses IFRS 16.

Question:

Pucci Corporation is a machinery dealer whose shares trades on the TSX, and so uses IFRS 16. Pucci leased a machine to Ernst Ltd. on January 1, 2017. The lease is for a six-year period and requires equal annual payments of $24,736 at the beginning of each year. The first payment is received on January 1, 2017. Pucci had purchased the machine for its inventory during 2016 for $99,000. Collectability of lease payments is reasonably predictable, and no important uncertainties exist about costs that have not yet been incurred by Pucci. Pucci set the annual rental amount to ensure an 8% rate of return. The machine has an economic life of six years, with no residual value, and reverts to Pucci at the termination of the lease.

Instructions:

a) Using time value of money tables, a financial calculator, or Excel functions, calculate the amount of each of the following:

1. Gross investment

2. Unearned interest income

3. Net investment in the lease

b) Prepare all necessary journal entries for Pucci for 2017.

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