On December 31, 2019, Mandolini Corp. (Mandolini), a publicly accountable entity, leased a small research submarine...

  

Transcribed Image Text:

On December 31, 2019, Mandolini Corp. (Mandolini), a publicly accountable entity, leased a small research submarine from Kelly Shipyards Inc. (KSI). The lease is for a period of eight years. The submarine has an economic life of 12 years. The submarine's fair value at the start of the lease was $950,000, and it will have a residual value of $250,000 at the end of the lease period. The residual value is guaranteed by Mandolini. Mandolini's management estimates that they will return the submarine to KSI at a fair value of $200,000. The annual lease payment (6% implicit rate of return, which is known to Mandolini) is $135,495. Each lease payment includes $15,000 related to the annual maintenance of the submarine. The first lease payment was made by Mandolini on December 31, 2019. Mandolini's incremental borrowing rate is 5%, and Mandolini's controller has determined that this lease should be accounted for as a finance lease. Required: Prepare the journal entries that Mandolini should record related to this lease on the following dates: a) December 31, 2019 (4 marks) b) December 31, 2020 (3 marks) c) December 31, 2027, assuming that the submarine is returned on this date and the fair value is assessed at $220,000 (5 marks) On December 31, 2019, Mandolini Corp. (Mandolini), a publicly accountable entity, leased a small research submarine from Kelly Shipyards Inc. (KSI). The lease is for a period of eight years. The submarine has an economic life of 12 years. The submarine's fair value at the start of the lease was $950,000, and it will have a residual value of $250,000 at the end of the lease period. The residual value is guaranteed by Mandolini. Mandolini's management estimates that they will return the submarine to KSI at a fair value of $200,000. The annual lease payment (6% implicit rate of return, which is known to Mandolini) is $135,495. Each lease payment includes $15,000 related to the annual maintenance of the submarine. The first lease payment was made by Mandolini on December 31, 2019. Mandolini's incremental borrowing rate is 5%, and Mandolini's controller has determined that this lease should be accounted for as a finance lease. Required: Prepare the journal entries that Mandolini should record related to this lease on the following dates: a) December 31, 2019 (4 marks) b) December 31, 2020 (3 marks) c) December 31, 2027, assuming that the submarine is returned on this date and the fair value is assessed at $220,000 (5 marks)

Answer rating: 100% (QA)

Lease amortization schedule Interest exp Principle Balance 6 31Dec19 950000 31Dec19 1... View the full answer