Question

Brief Exercise 20-8 McCormick Ltd., a public company following IFRS 16, recorded a right-of-use asset and lease liability at $150,000 on May 1, 2020. The interest rate is 10%. McCormick made the first lease payment of $25,561 on May 1, 2020. The lease requires a total of 8 annual payments. The equipment has a useful life of 8 years with no residual value. Prepare McCormick's December 31, 2020 adjusting entries. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Round answers to o decimal places, e.g. 5,275.) Debit Credit Date Account Titles and Explanation Dec. 31 (To record interest.) Dec. 31 (To record depreciation expense.)

Answer 1

Adjusting entries on Dec 31,2020:

Date	Account title and Explanation	Debit	Credit
Dec.31	Interest expense	$7,259
	Lease liability		$7,259
	[To record interest]
Dec.31	Amortization expense	$8,750
	Right-of use		$8,750
	[To record depreciation expense]

Calculations:

i. interest expense = [($150,000 - $25,561) x 10% x 7/12 = $7,259

ii.Amortization expense = [$150,000/10 yeas] x 7/12 = $8,750