HOMEWORK CHAPTER 21 – GROUP 8

MEMBERS’ NAME: Nguyễn Như Thành 11184485 – Trần Phương Thanh 11184465

Luyện Minh Thư 11184753 – Ngô Thị Thanh Thủy 11184869

Kiều Thu Trà 11184954 – Nguyễn Thu Trà 11184965

DUE DATE : Aug 12, 2020

E21.2:

a, The lease is finance lease because:

- It is non-cancelable

- It meest the lease term test: The lease term is 83,33% (5 : 6) of the economic life of the

machine.

b, The present value of the lease payment = Annual rental payment x Present value of an annuity

due of 1 for 5 periods at 5%

= $8,668 x 4.54595

= $39,404.29

c, Journal entry for this lease through December 31, 2020.

Date Account Titles Debit Credit

2020 Right-of-Use Asset (8,668 x 4.54595) 39,404.29

Jan 1 Lease Liability 39,404.29

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 Lease Liability 8,668

Cash 8,668

Interest Expense (39,404.29 x 0.05) 1,970.21

Dec 31 Lease Liability 1,970.21

Amortization Expense (39,404.29 : 5) 7,880.86

Right-of-Use Asset 7,880.86

E21.3:

a, This lease is a finance lease because:

- It is non-cancelable

- It meets the lease term test: The lease term is 83.33% (50 : 60) of the economic life of the

automobile.

- It meets the present value test: The present value of the lease payments is $9,793 (8,873 +

920), which is 97.93% (greater than 90%) of the fair value of the automobile.

b, The present value of the lease payments to determine the lease liability = Present value of 50

monthly rental payments = $8,873.

c, Record the lease on Delaney’ book at the date of commencement:

Date Account Titles Debit Credit

(Commencement Right-of-use asset 8,873

date) Lease Liability 8,873

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d, Record the first month’s lease payment:

Date Account Titles Debit Credit

(Commencement Lease Liability 200

date) Cash 200

e, Record the second month’s lease payment:

Date Account Titles Debit Credit

(Beginning of the Lease Liability 200

second month) Cash 200

f, Record the first month’s amortization on Delaney’s books:

Date Account Titles Debit Credit

(End of first month) Amortization Expense (8,873 : 50) 177.46

Right-of-Use Asset 177.46

g, The present value of the lease payments to determine the lease liability

Present value of 50 monthly rental payments $8,873

Present value of probable residual value payments of $680 (1,180 – 500) 530.17

due 50 months after the date of commencement (920 : 1,180 x 680)

Lease liability $9,403.17

E21.18:

The lease is classifies as operating lease because none of the finance lease tests are met:

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 Test Assessment
1. Transder of ownership test Transfer of ownership does not occur

2. Purchase option test There is no purchase option in the lease

3. Lease term test The lease term is 37.5% (3 : 8) of the economic

life of the machine, which is less than a major

part of the life of the asset (75%)

4. Present value test The presen value of the lease payment is

$427,714.39 (150,955 x 2.83339), which is

47.52% (427,714.39 : 900,000) of the fair

value of the machine. Therefore, the lease does

not meet the present value test.

5. Alternative use test The machine still has the residual value and

still during its economic life when returned to

Young Co. Therefore, the lease does not meet

the alternative use test.

a, Young report as income before income tax on this lease for 2020 the amount of 38,455

(150,955 of lease revenue – 112,500 of depreciation expense).

b, Journal entries St. Leger would record for 2020 in this lease:

Date Account Titles Debit Credit

Jan 1 Right-of-Use Asset 427,714.39

Lease Liability (150,955 x 2,83339) 427,714.39

Lease Liability 150,955

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 Cash 150,955

Dec 31 Interest Expense 150,955

Lease Liability (427,714.39 x 0.06) 25,663.16

Right-of-Use Asset (150,955 – 25,663.16) 125,291.84

c, Journal entry St.Leger record for short-term lease exception in 2020:

Date Account Titles Debit Credit

Jan 1 Lease Expense 150,955

Cash 150,955

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