On January 1, 20X1, Dwyer Company leases space for a donut shop. The lease is for five years with payments to be made at the beginning of each year. The lease calls for Dwyer to pay $10,000 on January 1, 20X1; $11,000 on January 1, 20X2; $12,500 on January 1, 20X3; $14,000 on January 1, 20X4; and $16,000 on January 1, 20X5. Dwyer has appropriately classified the lease as an operating lease under ASC Topic 842. Dwyer has a calendar reporting year and an incremental borrowing rate of 8%. Dwyer uses straight-line depreciation for its longlived assets. Ignore current and noncurrent classification for this exercise.

Required:

1. What journal entries should Dwyer make at January 1, 20X1, to record the effects of the lease?

2. Prepare Dwyer’s amortization table for the leased shop.

3. What journal entries would Dwyer make on December 31, 20X1, to record the effects of the lease?

4. What is the balance of the right-of-use asset and the lease obligation on January 1, 20X3, after Dwyer makes the lease payment?

5. What would be the balance of the right-of-use asset and the lease obligation on January 1, 20X3 (after Dwyer makes the lease payment), if Dwyer were using IFRS 16?