Question

On January 1, 2017, Dwyer Company leases space for a donut shop. The lease is for five years with payments to be made at the beginning of each year. The lease calls for Dwyer to pay $10,000 on January 1, 2017, $11,000 on January 1, 2018, $12,500 on January 1, 2019, $14,000 on January 1, 2020, and $16,000 on January 1, 2021. Dwyer has adopted early ASC 842 and has appropriately classified the lease as an operating lease. Dwyer has a calendar reporting year and an incremental borrowing rate of 8%. Dwyer uses straight-line depreciation for its long-lived assets. Ignore current and noncurrrent classification for this exercise. Use tables (PV of 1, PVAD of 1, and PVOA of 1) (Use the appropriate factor(s) from the tables provided.)

1. What journal entries should Dwyer make at January 1, 2017, to record the effects of the lease?
2. Prepare Dwyer’s amortization table for the leased shop.
3. What journal entries would Dwyer make on December 31, 2017, to record the effects of the lease?
4. What is the balance of the right-of-use asset and the lease obligation on January 1, 2019, after Dwyer makes the rent payment?
5. What would be the balance of the right-of-use asset and the lease obligation on January 1, 2019, after Dwyer makes the rent payment under IFRS 16?

Answer 1

Refer the below images for the above asked questions in the detailed solution.
solution: Ol Journal entry at 111117 under ASU 2016-02 : pv-factor (810) present value 100000 0-92593 a 3 4 $10 000.00 $ 4000.00 $ 12500.00 $ 4DOO OD $ 6000-00 pvogt pr 1,8-10 pv 2,84 PV 3,84 pv 4,81 0.85734 0.79383 0.73503 $10,000.00 $ 10185-23 $ 10716.75 $ 11113.62 $ 11760.42 $ 33,776-62 $63,500.00 $53776.08 * Right $53776-08 of use Asset - Operating lease Ak or so operating lease liability to record lease at commencement) (Bring liability All DN operating Lease 50 cash (Being to record $10000.00 $10000.00 first payment) ③) Amortization Table: Date Total payment Interest expense principal Reduction Balance dddudduu ouddu $53776-08 $43776.08 $10000.00 $100.00 AS00-60 $ 14060.00 36000.00 $ 3502-09 $2902-257 $2134.43 $10000-00 $7497.91 & 9597.75 $ 11865.57 $ 14814.8 $ 53 776.08 $36278-17 126680.42 $14814.85 10120 121 $1185.15 $63500.00 $ 9733.92

journal entries at ca/31/2017 : Toral rent payments $63500.00 lease term Straight line vent expense $ 12700.00 Lease $3502.09 $3502-09 expense Ak or To operating lease liability to record increase in Liability for interest payable) (Being $9194.91 $9197-91 Lease expense AK or To Right of use Asset operating (Straight line expense of $12000 less interest of $3,502.09). al operating lease liability and right of use Asset : 26680-42 Lease liability at 111119 (from amortization Table) $26680- Relation between lease Liability and right of use Asset Lease liability at ililig $26680-42 Add: - prepaid rent Cililig payment) $ 2500.00 Less Difference between prior cash payments & rent expense Less : - Total payments for first two years of $21000 less expense of $2,400 (312700 $(4400.00) rent expense & 2 years). Right of use Asset at 111119 . $347 80.42

* PPPPPP l. Check using Journal entry and Taclont approach : 31/Dec/18 Right of use Asset 111117 $5377668 Amortization 12/31/17 $9197.91 Amortization 12/31/18 $9797.75 12/31/08 $34780. I 42 Finance lease liability and right of use asset under IFRS 16: 5 Lease liability at 11olig (same as ASC 842) $26680-42 Right of use Asset at ililig Initial balance $53776-08 Less Two years of straight line Depreciation $(21510-43) [$53776.08 + 2] $32 265.65 c IFRS - Asset less ASU 2016-02 Asset $(2514.77) * The book value of the Asset under IFRS 16 is $2514 77. less than the operating lease asser under Aso 2016-02. This difference also represents the additional amortization that was recognized as part of pretax income over the prior two years This difference would be reflected in Retained earnings. To keep the fundamental accounting equation in balance, if assets are less then equities also must be less.