Question

Norway Corporation leases equipment from Nova Scotia Company on January 1, 2017. The lease agreement does not transfer ownership, contain a bargain purchase option, and is not a specialized asset. It covers 4 years of the equipment’s 8-year useful life, and the present value of the lease payments is less than 90% of the fair value of the asset leased.Prepare Norway’s journal entries on January 1, 2017, and December 31, 2017. Assume the annual lease payment is $25,000 at the beginning of each year, and Norway’s incremental borrowing rate is 7%, which is the same as the lessor’s implicit rate. (hint: operating lease. 1/1/17 is lease inception and first lease payment. 12/31/17 is lease expense)

there is no information to add.

Answer 1

Answer

Lessee Books ASC 842 states that regardless of how a lease is classified, a lessee will be required to recognize a right-of-use asset and a lease liability for substantially all leases at the commencement date Workings: Year 1 2 3 4 Year for discounting 0 1 23 4 No Guaranteed residual value Annual Lease Instalments paid at the beginning of the year PV factor @7% Present Value of Min lease payments Value at which to be recorded as asset by lessee 1.00000 25,000 90.608 25,000 0.93458 23,365 25,000 0.87344 21,836 25,000 0.81630 20,408 0.76290 - 90,608 Amortization Schedule Repayment Schedule Finance Charges Annual Payment Year Reduction in Principal Amount / Amortizatio Outstanding n of ROU Liability 90,608 25,000 65,608 20,407 45,201 21,836 23,365 23,364 0 0 0 4,593 3,164 1,636 25,000 25,000 25,000 25,000 -0 D5 9,392 100,000 90,608 Debit Credit 90,608 90,608 25,000 25,000 Operating Lease Lessee Books General Journal January 1, 2017 Right-of-Use Asset Lease Liability (To record the lease.) January 1, 2017 Lease Liability Cash (to record lease payment) December 31, 2017 Amortization Expense (Lease expense) Right-of-Use Asset December 31, 2017 Interest Expense (Lease expense) Lease Liability (to record interest expense January 1, 2018 Lease Liability Cash 20,407 20,407 4,593 L 4,593 L 25,000 25,000