The following facts are for a non-cancellable lease agreement
between Crane Corporation and Russell Corporation, a
|Inception date||July 1, 2020|
|Annual lease payment due at the beginning of each year, starting July 1, 2020||$||20,502.59|
|Bargain purchase option price at end of lease term reasonably certain to be exercised by Russell||$||3,500.00|
|Lease term||5 years|
|Economic life of leased equipment||10 years|
|Fair value of asset at July 1, 2020||$||89,200.00|
|Lessor’s implicit rate||9%|
|Lessee’s incremental borrowing rate||9%|
The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties about costs that have not yet been incurred by the lessor. The lessee assumes responsibility for all executory costs. Both Russell and Crane use IFRS 16.
(d) Prepare the journal entries to reflect the signing of the lease and to record the receipts and income related to this lease for the years 2020, 2021, and 2022. The lessor’s accounting period ends on December 31, and Crane Corporation does not use reversing entries.
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