ABC Ltd (the lessee) enters a lease contract with XYZ Ltd (the lessor). The following information is
Question:
ABC Ltd (the lessee) enters a lease contract with XYZ Ltd (the lessor). The following information is given: Lease term: 4 years; Upfront payments: $80,000; Costs of entering into the lease; $30,000; Costs of making assets ready for use; $20,000; Periodic lease payments: $120,000 including a service component $10,000, paid at the end of the year; Bargain purchase option: $50,000; Interest rate: 6%. Additional information: ABC is likely to exercise the bargain purchase option at the end of the lease. The asset is expected to have a 6-year useful life in total, with a $100,000 residual value at the end of the asset life.
1)The value of the lease liability for future amortization is
2)The fair value of the leased asset is:
3)The annual depreciation of the leased asset is:
4)Provide journal entries for ABC Ltd's entry of the lease at the inception.
5)Provide journal entries for year 2 on ABC Ltd's accounting book.
6)Provide journal entries for year 4 on ABC Ltd's accounting book.
Operations Management in the Supply Chain Decisions and Cases
ISBN: 978-0073525242
6th edition
Authors: Roger Schroeder, M. Johnny Rungtusanatham, Susan Goldstein