Use the information for Merrill Corporation from BE20.11 and the information that you gathered while solving BE20.11 and BE20.12. Prepare a schedule contrasting the journal entries prepared using a guaranteed residual value with those using an unguaranteed residual value. Include in your schedule entries on August 31, 2021, for the year-end accrual of interest in the lease obligation and the recording of annual depreciation expense using the straight-line method and assuming no residual value. Round all entries to the nearest dollar. 

Data From BE20.11.

Merrill Corporation, which uses ASPE, enters into a six-year lease of equipment on September 1, 2020, that requires six annual payments of $28,000 each, beginning September 1, 2020. In addition, Merrill guarantees the lessor a residual value of $17,000 at lease end. The equipment has a useful life of seven years. 

(a) Using (1) tables, (2) a financial calculator, or (3) Excel functions, calculate the amount of the capital lease and prepare Merrill’s September 1, 2020 journal entry, assuming an interest rate of 9%. Round amounts to the nearest dollar. 

(b) Assume instead that Merrill follows IFRS and that the amount expected to be paid under the residual value guarantee is $10,000. Calculate the amount of the right-of-use asset and prepare Merrill’s September 2020 journal entries, assuming an interest rate of 9%. Round amounts to the nearest dollar. 

Data From BE20.12.

Use the information for Merrill Corporation from BE20.11. Assume that a residual value of $17,000 is expected at the end of the lease, but that Merrill does not guarantee the residual value. Using (1) tables, (2) a financial calculator, or (3) Excel functions, calculate the amount of the capital lease. Prepare Merrill’s September 1, 2020 journal entry, assuming an interest rate of 9% and that Merrill also uses ASPE. Round amounts to the nearest dollar.