ABC Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2019. The lease
Question:
ABC Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2019. The lease is for an 9-year period and requires equal annual payments of $27,300 at the beginning of each year. The first payment is received on January 1, 2017. ABC had purchased the machine during 2016 for $150,000. Collectability of lease payments by ABC is probable. ABC set the annual rental to ensure a 7% rate of return. The machine has an economic life of 10 years with no residual value and reverts to ABC at the termination of the lease. Assume that Dexter Corporation does not know the rate implicit in the lease used by ABC , and Dexter’s incremental borrowing rate is 9%. In addition, assume that Dexter incurs initial direct costs of $19,000.
Compute the amount of the lease liability and right-of-use asset for Dexter, and prepare all necessary journal entries for Dexter for 2017.
Intermediate Accounting IFRS
ISBN: 978-1119372936
3rd edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield