Example related to income statement given in lecture slides

Chapter 4: E4.6 (pg. 303) and E4.11 (pg. 306)

Chapter 5: E5.11, E5.12 (pg. 410-413) and P5.3 (pg. 420)

E4.6 (LO2, 3) (Income Statement Items) The following balances were taken from the books of Parnevik ASA on December

Prepare an income statement; 100,000 ordinary shares were outstanding during the year.

E4.11 (LO2, 3) (Condensed Income Statement—Periodic Inventory Method) Presented below are selected ledger accounts
E5.11 (LO1, 2) (Statement of Financial Position Preparation) Presented below is the adjusted trial balance of Abbey Corpor
Prepare a classified statement of financial position as of December 31, 2019
E5.12 (LO1, 2) (Preparation of a Statement of Financial Position) Presented below is the trial balance of Vivaldi SpA at Dec
Prepare a statement of financial position at December 31, 2019, for Vivaldi SpA. (Ignore income taxes.)
P5.3 (LO1, 2) (Statement of Financial Position Adjustment and Preparation) The adjusted trial balance of Asian-Pacific Ltd.
(amounts in thousands).
arnevik ASA on December 31, 2019.

Parnevik ASA
Income statement
For the year ended December 31, 2019

Sales revenue $ 1,280,000

Less Sales return & allowance $ 150,000
Sales discount $ 45,000 $ 195,000
Net sales revenue $ 1,085,000
COGS $ 621,000
Gross profit $ 464,000

Selling expense $ 194,000

Administrative expense $ 97,000 $ 291,000
Other income and expense
Loss from impairment of plan $ 120,000
Interest revenue $ 86,000 $ 34,000
income from operation $ 139,000
Interest expense $ 60,000
Income before income tax $ 79,000
Income tax $ 26,860
Net income $ 52,140
EPS (52,140/100,000) $ 0.521

re selected ledger accounts of Woods Corporation at December 31, 2019.

Wood Corporation
Income statement
As the year ended December 31, 2019
Sales
Sale revenue 4,175,000
Less: Sale discount 34,000
Sale R&A 79,000
Net sale revenue 4,062,000
 COGS (1) 2,665,000
Gross profit 1,397,000

Selling Expenses (2) 1,127,000

G&A expense 270,000
Other income & expenses
Rent revenue 240,000
Income from operation 510,000
Interest expense 176,000
Income before income tax 334,000
Income Tax 100,200
Income from continuing operations 233,800
Discontinued operations
Loss on sale of division 60,000
Less: Tax 18,000 -42000
Net income 191,800
EPS 2.1311111111

al balance of Abbey Corporation at December 31, 2019.

Abbey Corporation
Statement of Financial Position December 31, 2019

Assets Non-current assets

Property, plant, and equipment
Equipment £ 48,000
Accumulated Depreciation—Equipment £ 9,000 £ 39,000
Total property, plant, and equipment

Intangible assets
Trademarks £ 950

Total non-current assets £ 39,950

Current assets
Cash £ 6,850
Prepaid insurance £ 1,000
Supplies £ 1,200
Total current assets £ 9,050

Total Asset £ 49,000

 Equity and Liabiliti Equity
Share Capital—Ordinary £ 10,000
Retained Earnings £ 20,000
Less: Net loss £ 2,500
Total Equity £ 27,500

Non-current liabilities
Bonds Payable (due 2022) £ 9,000
Total Non-current liabilities £ 9,000

Current liabilities
Accounts Payable £ 10,000
Salaries and Wages Payable £ 500
Unearned service revenue £ 2,000 £ 12,500
Total current liabilities
Total liabilities £ 21,500

Total Equity and Liabilities £ 49,000

lance of Vivaldi SpA at December 31, 2019.
taxes.)

Assets Non-current assets

Long-term investments
Investments in bonds
Investments in capital shares.
Total long-term investments

Property, plant, and equipment

Land
Buildings 1,040,000
Less: A. depreciation 352,000
Equipment 600,000
Less: A. Depreciation 60,000
Total property, plant, and equipment

Intangible assets
Franchise
Patent
Total intangible assets.

Total non-current assets

Current assets
Cash
 Accounts receivable 435,000
Less: Allowance for doubtful accounts 25,000
Trading securities
Inventories

Total current assets

Total assets

alance of Asian-Pacific Ltd. and other related information for the year 2019 are presented below

Additional information:
1. The average-cost method of inventory value is used.
2. The cost and fair value of the long-term investments that consist of ordinary shares and bonds is t

3. The amount of the Construction in Process account represents the costs expended to date on a b
at the present time.) The land on which the building is being constructed cost ¥85,000, as shown in t

4. The patents were purchased by the company at a cost of ¥40,000 and are being amortized on a s
5. The notes payable represent bank loans that are secured by long-term investments carried at ¥12
6. The bonds payable bear interest at 8% payable every December 31, and are due January 1, 2030
7. 600,000 ordinary shares with a par value of ¥1 were authorized, of which 500,000 shares were iss
31, 2019, so that all important information is fully disclosed.
Instructions
Prepare a statement of financial position as of December 31, 2019, so that all important information i
Asian-Pacific Ltd
Statement of Financial Position
December 31, 2019

Assets Non-current assets

Long-term investments 339,000

Property, plant, and equipment

 Land 85,000
Buildings 124,000
Equipment 400,000
Less: A. Depreciation 240,000 160,000
Total property, plant, and equipment

Intangible assets
Patent 36,000
Total Non-Current Assets
Current assets
Cash 41,000
Accounts receivable 163,500
Less: Allowance for doubtful accounts 8,700 154,800
Prepaid Insurance 5,900
Inventories 208,500
Total Current Assets
Total Assets

Equity and Liabiliti Equity

Share Capital—Ordinary 500,000
Share Premium—Ordinary 45,000
Retained Earnings 138,000
Total Equity

Non-current liabilities
Bonds payable 180,000

Current liabilities
Accounts Payable 148,000
Notes Payable 94,000
Accrued Expenses 49,200

Total equity and liabilities

COGS (1)
Inventory (beginning) 535,000
Purchases 2,786,000
Purchase discounts 27,000
Purchase returns 15,000
 Freight-in 72,000
Inventory (ending) 686,000
2,665,000

Selling & Administrative Expenses (2)

Salaries and wages expense (sales) 284,000
Salaries and wages expense (office) 346,000
Sales commissions 83,000
Telephone and Internet expense (sales 17,000
Utilities expense (office) 32,000
Miscellaneous office expenses 8,000
Depreciation expense (office equipment) 48,000
Depreciation expense (sales equipment) 36,000
Delivery expense 93,000
Advertising expense 54,000
Insurance expense (office) 24,000
Accounting and legal services 33,000
Selling expenses 69,000
1,127,000

Selling expense

CR=DR=70,500
 Equity and Liab

299,000
277,000
576,000

260,000

688,000

540,000
1,488,000

160,000
195,000
355,000

2,419,000

197,000
 410,000
153,000
597,000

1,357,000
3,776,000

ary shares and bonds is the same.

expended to date on a building in the process of construction. (The company rents factory space
st ¥85,000, as shown in the trial balance.

re being amortized on a straight-line basis.

nvestments carried at ¥120,000. These bank loans are due in 2020.
are due January 1, 2030.
500,000 shares were issued and outstanding. Instructions Prepare a statement of financial position as of December

all important information is fully disclosed.

 369,000

744,000

410,200
1,154,200

683,000

471,200

1,154,200
-
-
-

s
a
s
s
a
a
a
s
s
s
a
a
s
Equity
Share capital—ordinary ($5 par) 1,000,000
Retained earnings 130,000

Accumulated other comprehensive income 80,000

Less: Treasury shares 191,000
Total equity 1,019,000

Non-current liabilities
Bonds payable 1,000,000
Long-term notes payable 900,000
Provision for pensions 80,000
Total non-current liabilities 1,980,000
Current liabilities
Short-term notes payable 90,000
Accounts payable 455,000
Dividends payable 136,000
Accrued liabilities 96,000
Total current liabilities 777,000

Total equity and liabilities 3,776,000

E6.2 (LO1, 2) (Simple and Compound Interest Computations) Sue Ang invests HK$30,000 at 8% annual interest, leaving th
of the interest for 8 years. At the end of the 8 years, Sue withdraws the accumulated amount of money

a. Compute the amount Sue would withdraw assuming the investment earns simple interest
( 30,000 x 8% x 8 ) + 30,000 = 49,200
b. Compute the amount Sue would withdraw assuming the investment earns interest compounded annually
30,000 x (1+8%)^8 = 55,527.91
c. Compute the amount Sue would withdraw assuming the investment earns interest compounded semiannually
30,000 x (1+8%/2)^16 = 56,189.44

E6.3 (LO2, 3, 4) (Computation of Future Values and Present Values) Using the appropriate interest table, answer each of th
independent of the others.)

a. What is the future value of €9,000 at the end of 5 periods at 8% compounded interest?
FV = PV x FVF 13,223.97 13,223.95
b. What is the present value of €9,000 due 8 periods hence, discounted at 6%?
PV = FV x PVF 5,646.69 5,646.71
c. What is the future value of 15 periodic payments of €9,000 each made at the end of each period and compoun
FV = R(FVF-OAn,i) 285,952.32 285,952.34
d. What is the present value of €9,000 to be received at the end of each of 20 periods, discounted at 5% comp
PV = R(PVF-OAn,i) 112,159.89 112,159.89

E6.12 (LO4) (Analysis of Alternatives) Brubaker Inc., a manufacturer of high-sugar, low-sodium, low-cholesterol TV dinners
has decided to locate a new factory in the Florida. Brubaker will either buy or lease a site depending upon which is more
to the following three buildings

Building A: Purchase for a cash price of $610,000, useful life 25 years. Building B: Lease (cho thuê) for 25
year. Building C: Purchase for $650,000 cash. This building is larger than needed; however, the excess spac
payments will be received at the end of each year. Brubaker Inc.

Instructions In which building would you recommend that Brubaker Inc. locate, assuming a 12% cost of funds?
Purchase for a cash price of $610,000,
Building A 610,000
useful life 25 years.

25 years with annual lease payments of

$70,000 being made at the beginning of the
Building B 614,902.40
year.
(Annuity Due)

Purchase for $650,000 cash.

excess space is rent: 25 years, $6000
Building C 602,941.16
(receive at the end of each year)
Ordinary Annuity

E6.13 (LO5) (Computation of Bond Liability) Messier SA manufactures cycling equipment. Recently, the vice president of op
demand for the company's bikes. After a careful evaluation of the request, the board of directors has decided to raise funds
on March 1, 2034, with interest payable each March 1 and September 1. At the time of issuance, the market interest rate fo

Instructions As the controller of the company, determine the selling price of the bonds
FV = 3,000,000
i = 10% 3,000,000 of 11% term company bonds on
Interest payable: 2 times/year March 1, 2019, due on March 1, 2034, with
From 2019 to 2034: 15 years interest payable each March 1 and September 1
=> 30 periods

PMT = 3,000,000 x 11% : 2 165,000

PV = R(PVF-OAn,i)
2,536,454.25
n,i = 30,5%

PV = FV(PVFn,i) 694,140 3,230,594.25

at 8% annual interest, leaving the money invested without withdrawing any
t of money

rest compounded annually

est compounded semiannually

nterest table, answer each of the following questions. (Each case is

nd of each period and compounded at 10%?

eriods, discounted at 5% compound interest?

um, low-cholesterol TV dinners, would like to increase its market share in the Sunbelt. In order to do so, Brubaker
depending upon which is more advantageous. The site location committee has narrowed down the available sites

ing B: Lease (cho thuê) for 25 years with annual lease payments of $70,000 being made at the beginning of the
ded; however, the excess space can be sublet (cho thuê lại) for 25 years at a net annual rental of $6,000. Rental
end of each year. Brubaker Inc. has no aversion to being a landlord.

12% cost of funds?

rice of $610,000,

ease payments of 614,902.11 Present Value of AD

t the beginning of the

0 cash.
25 years, $6000
47,058.83 Present Value of OA
each year)

ecently, the vice president of operations of the company has requested construction of a new plant to meet the increasing
tors has decided to raise funds for the new plant by issuing €3,000,000 of 11% term company bonds on March 1, 2019, due
ance, the market interest rate for similar financial instruments is 10%
P6.3
Bid A Installing cost
12,000 x 5.75 69,000

Maintenance cost (first 5 years)

12,000 x 0.25 x
R(PVF-OAn,i) 9,719
n,i = 4,9%

Resurfacing
69,000 x PVF
44,845.17
n,i = 5,9%

Maintenance cost (last 5 years)

12,000 x 0.25 x
R(PVF-OAn,i) 9719.16
n,i = 4,9%

PV of Bid A 133,283
meet the increasing
n March 1, 2019, due
Bid B Installing cost
12,000 x 10.50 126,000

Maintenance cost
12,000 x 0.09 x R(PVF-
OAn,i) 6,474.87
n,i = 9,9%

PV of Bid B 132,474.87
E14.7,14.8, 14.11, 14.15

E14.7

McEntire Co. sold $2,500,000 of 11%, 10-year bonds at 106.231 to yield 10% on January 1, 2019. The bon
dated January 1, 2019, and pay interest on July 1 and January 1. Determine the amount of interest expens
reported on July 1, 2019, and December 31, 2019

a. Present value at Principal

2,500,000 x 0.37689 (20,5%)

Present value at interest payment

2,500,000 x 11%/2 x 12.46221

Selling bonds price

Premium on bonds payable

Cash
Bonds Payable

July 1, 2019 Interest Expense

Bonds Payable
Cash

December 31,2019 Interest Expense

Bonds Payable
Cash

E14.8
On June 30, 2018, Macias SA issued R$5,000,000 face value of 13%, 20-year bonds at R$5,376,150 to yi
The bonds pay semiannual interest on June 30 and December 31.
1.a
June 30, 2018 Cash
Bonds payable
2.a
December 31, 2018 Interest Expense
Bonds payable
Cash
3.a
June 30, 2019 Interest Expense
Bonds payable
 Cash

4.a
December 31, 2019 Interest Expense
Bonds payable
Cash

b. Bonds payable, 13% (due on June 30, 2030)

1.c Interest Expense (2019)

2.c Interest Revenue

Less: Premium on Bonds payable
Total cost

E14.11

1. Purchases land having a fair value of €300,000 by issuing a 5-year, zerointerest-bearing promissory not
face amount of €505,518.
2. Purchases equipment by issuing a 6%, 8-year promissory note having a maturity value of €400,000 (inte
payable annually)
The company has to pay 11% interest for funds from its bank.

a.
1. Land
Notes payable

2. Equipment
Notes payable

Present value at Principal

400,000 x 0.43393 (8,11%)

Present value at interest payment

400,000 x 6% x 5.14612

Selling price

Discount on notes payable

b. record the interest at the end of first year for both notes
1. Cash
Notes payable

Interest Expense
 Interest payable

2. Cash
Notes payable

Interest Expense
Cash
Notes payable

E14.15

On June 30, 2011, Mendenhal plc issued 8% bonds with a par value of £600,000 due in 20 years. They
issued at 828.414 to yield 10% and were callable at 104 at any date after June 30, 2019. Because of low
rates and a significant change in the company's credit rating, it was decided to call the entire issue on June
and to issue new bonds. New 6% bonds were sold in the amount of £800,000 at 112.5513 to yield 5%; th
in 20 years. Interest payment dates are December 31 and June 30 for both old and new bonds.
a. Prepare journal entries to record the retirement of the old issue and the sale of the new issue on June 3
Unamortized discount is £78,979.
b. Prepare the entry required on December 31, 2020, to record the payment of the first 6 months' interest a
amortization of premium on the bonds.

a. Reacquisition Price
Carrying amount of bonds redeemed
Loss on extinguishment

Bonds payable
Loss on extinguishment
Cash

Cash
Bonds payable

b. Interest Expense
Bonds payable
Cash
 Cheriel Inc. issued $600,000 of 9%, 10-year bonds on Jun
eld 10% on January 1, 2019. The bonds were
provided a yield of 10% on the bonds. Interest is payable s
ermine the amount of interest expense to be
30. Determine the amount of interest expense to record if
October 31, 2019

b.
942,225

1,713,553.88

2,655,778.88
$ 2,655,775
655,778.88

2,655,778.88
2,655,778.88

132,788.94 October 31,2019

4,711.06
137,500

132,553.39
4,946.61
137,500

20-year bonds at R$5,376,150 to yield 12%.

5,376,150
5,376,150

322,569
2,431
325,000

322,423.14
2,576.86
 325,000

322,268.53
2,731.47
325,000

5,368,410.67

644,691.67

13,000,000
376,150
12,623,850

zerointerest-bearing promissory note in the

ng a maturity value of €400,000 (interest

300,000 $ 300,000
300,000

297,078.88
297,079

173,572

123,506.88 Table 6.4

297,078.88

102,921.12

300,000
300,000

33,000
 33,000

297,078.88
297,078.88

32,678.68
24,000
8,678.68

of £600,000 due in 20 years. They were

after June 30, 2019. Because of lower interest
cided to call the entire issue on June 30, 2020,
800,000 at 112.5513 to yield 5%; they mature
for both old and new bonds.
the sale of the new issue on June 30, 2020.

yment of the first 6 months' interest and the

624,000
521,021 par value - unamortized discount
102,979

521,021
102,979
624,000

900,410.40
900,410.40

22,510.26
1,489.74
24,000
 Inc. issued $600,000 of 9%, 10-year bonds on June 30, 2019, for $562,500. This price
d a yield of 10% on the bonds. Interest is payable semiannually on December 31 and June
ermine the amount of interest expense to record if financial statements are issued on
r 31, 2019

Present value of Principal

600,000 x 0.37689 226,134

Present value at interest payment

600,000 x 9%/2 x 12.46221 336,479.67

Selling bonds price 562,613.67

Discount on bonds payable 37,386.33

Cash 562,500
Bonds payable 562,500

Interest Expense 18,750

On October 1, 2019, Chinook Company sold 12% bonds having a maturity value of $800,000
for $853,382 plus accrued interest, which provides the bondholders with a 10% yield. The
bonds are dated January 1, 2019, and mature January 1, 2024, with interest payable
December 31 of each year. Prepare the journal entries at the date of the bond issuance and for
the first interest payment.
c.
October 1, 2019 Cash 925,382
Bonds payable 853,382
Interest Expense 72,000

December 31, 2019 Interest Expense 74,665.45

Bonds Payable 21,334.55
Cash 96,000
E17.1 (LO1) (Investment Classifications) For the following investments, identify whether they are

investment investment classification

A bond that will mature in 4 years was bought Chỉ cần giá tăng là sẽ bán
1 month ago when the price dropped. As soon =>Tradign debt investment
as the value increases, which is expected next
a month, it will be sold

10% of the outstanding shares of Farm-Co are Share => 10 phần trăm=> simpleinvestment =>
purchased. The company is planning on tác động vào hđ của cty, nếu tắng lên 30 pt thì có
eventually getting a total of 30% of its quyết và tác động => mang tính chất dài hạn=>
b outstanding shares. quity investment

10-year bonds were purchased this year. The

bonds mature at the first of
next year, and the company plans to sell the
c bonds if interest rates fall. trading

Bonds that will mature in 5 years are

purchased. The company has a strategy to
hold them to collect interest payments and held for collection => k nói gf
d principal of the bonds at maturity. đến sale

A bond that matures in 10 years was muốn giữ đến khi đáo hạn, có
purchased. The company is investing tiền tđể sau 10 năm thực hiện
money set aside for an expansion project dự án, k nhắc đến việc bán
e planned 10 years from now. => held for collection

Ordinary shares in a distributor are purchased

to meet a regulatory requirement for doing
business in the distributor's region. The
f investment will be held indefinitely 5. non trading

E17.2 (Debt Investments) On January 1, 2019, Jennings SA purchased at par 10% bonds having a maturity value of
€300,000. They are dated January 1, 2019, and mature January 1, 2024, with interest receivable December 31 of
each year. The bonds are held to collect contractual cash flows.

9% bonds purchased to yield 12%

a, Prepare the journal entry at the date of the bond purchase.

date cash received interest revenue

1/1/2019
12/31/2019 27,000 33,406
12/31/2020 27,000 34,175
12/31/2021 27,000 35,035
b, Prepare the journal entry to record the interest received for 2019.
 December31,2020

Dr. Cash 27,000

Dr.Debt investments 34,175
Cr.Interest Revenue
c. Prepare the journal entry to record the interest received for 2020.

E17.5 (LO1) (Debt Investments) On January 1, 2019, Morgan Company acquires $300,000 of Nicklaus, Inc., 9% bonds at
a price of $278,384. The interest is payable each December 31, and the bonds mature December 31, 2021. The
investment will provide Morgan Company a 12% yield. The bonds are classified as held-for-collection.

E 17.5

a Date Cash received

1/1/2019
31/12/2019 27,000
31/12/2020 27,000
31/12/2021 27,000

b. 31/12/2020
* Interest receipt
Dr. Cash 27,000
Dr. Debts investment 7,175
Cr. Interest revenue

E17.6 (LO1) (HFCS Debt Securities Entries and Financial Statement Presentation) At December 31, 2019, the held-for-collectio
E17.9, (Comprehensive Income Disclosure) Assume the same information as E17.6 and that Steffi Graf SA reports net
income in 2019 of €120,000 and in 2020 of €140,000. Total holding gains (including any realized holding gain or
loss) equal €40,000 in 2020.

a, Prepare a statement of comprehensive income for 2019, starting with net income
STEFFI GRAF SA
Statement of Comprehensive Income
For the year ended December 31,2019

Net income 120,000

Other comprehensive income
Unrealized holding gain 1,100
Comprehensize income 121,100
b, Prepare a statement of comprehensive income for 2020, starting with net
income.
STEFFI GRAF SA
Statement of Comprehensive Income
For the year ended December 31,2020

Net income
Other comprehensive income
Hoilding gains 40,000
Add: Reclasssification adjustment
for loss included in net income 2,500
Comprehensize income

Accumulated other comprehensive income:

Beginning balance, January 1, 2020
Current period other comprehensive income 40,000
Amount reclassified from accumulated
other comprehensive income 2,500
Unrealized holding gains
Ending balance, December 31,2020
 : 1. Debt investments—held-for-collection. 2. Debt investments—held-for-collection and
selling. 3. Debt investments—trading. 4. Trading equity investments. 5. Non-trading equity
investments.

n trăm=> simpleinvestment => kco quyền

a cty, nếu tắng lên 30 pt thì có quyền biểu
=> mang tính chất dài hạn=> non trading
quity investment

g a maturity value of
December 31 of

bond carrying
discount amount
amortization of bonds
278,384
6,406 284,790
7,175 291,965
8,035 300,000
 61,175

icklaus, Inc., 9% bonds at

r 31, 2021. The
ction.

Bond Carrying
Interest discount amount
revenue amortization of bond
278,384
33,406.08 6,406 284,790
34,174.81 7,175 291,965
35,035.11 8,035 300,000

34,174.81

31, 2019, the held-for-collection and selling debt portfolio for Steffi Graf SA is as follows.
a,
Dr.Fair value adjustment 1,100
Cr. Unrealized holding gain or loss - income

b, assett
 a

Debt investments (intent is to hold for collection)

Bonds payable
Total securities gains

Net Income before security gains and losses

Add: Total securities gains
Revise Net income for 2019

a, Dr. debt investments

Cr. Unrealized holding gain or loss-income

b,
Dr.bond payable
Cr. unrealized holding gain or loss

Fair value option thì lúc nào cũng đưa vào netincome

ffi Graf SA reports net

holding gain or

a Steffi Graf SA
Comprehensive income statement
As of December 31, 2019
Net income
Add: Other comprehensive income
Unrealized holding gain
Comprehensive income statement
b Steffi Graf SA
Comprehensive income statement
As of December 31, 2020
 Net income
Add: Other comprehensive income
Unrealized holding gain
Reclassification adjustment for loss included in net income
Comprehensive income
140,000
Accumulated other comprehensive income:
Beginning balance, January 1, 2018

42,500 Current period other comprehensive income

182,500 Amount reclassified from accumulated other comprehensive income
Ending balance, December 31, 2018

1100

42,500
43,600
1,100
 Fair value
( at
Carrying December
amount 31) Gain

40,000 41,000 1,000

220,000 195,000 25,000 được lợi vì khoản nợ chỉ còn 195
26,000

osses 100,000
26,000
126,000

1000
1000

25000
25000

120,000

0
120,000
 140,000

40,000
luded in net income 2,400
182,400

me:
$1,100

ome $40,000
her comprehensive income 2,400
$43,500
21.1(LO2)(Lessee Entries; No Residual Value) DU Journeys enters into an agreement with Traveler plc to lease a car on

1. The term of the non-cancelable lease is 3 years with no renewal or bargain purchase option. The remainin
is 3 years, and it is expected to have no residual value at the end of the lease term.
2. The fair value of the car was £15,000 at commencement of the lease

3. Annual payments are required to be made on December 31 at the end of each year of the lease, beginnin
The first payment is to be of an amount of £5,552.82, with each payment increasing by a constant rate of 5%
payment (i.e., the second payment will be £5,830.46 and the third and final payment will be £6,121.98)
4. DU Journeys' incremental borrowing rate is 8%. The rate implicit in the lease is unknown.
5. DU Journeys uses straight-line depreciation for all similar cars.
Instructions:
a. Prepare DU Journeys' journal entries for 2018, 2019, and 2020.

b. Assume, instead of a constant rate of increase, the annual lease payments will increase according to a pri
level, the price index stipulates that the first rental payment should be £5,820. What would be the impact on t
by DU Journeys at commencement of the lease, as well as for subsequent years?

E21.2(LO2)(Lessee Entries; Lease with Unguaranteed Residual Value) On December 31, 2018, Burke Corporation sign
annual payments of $8,668 at the beginning of each year, starting December 31, 2018. The machine has an estimated
lessor at the end of the lease term. Burke uses the straight-line method of depreciation for all of its plant assets. Burke's inc

Instructions b. Prepare all necessary journal entries

a. Compute the present value of the lease payments. Date Account name
Payment $ 8,668 31/12/2018 Right of use asset (payment)
Present value factor (i=5%,n=5) 4.54595 annuity due Lease liability
PV of lease payment $ 39,404.29
31/12/2018 Lease liability
Cash

31/12/2019 Depreciation expense

Righ of use asset

31/12/2019 Interest expense

balance of lease liability $ 23,605 Lease liability
Cash
E21.3(LO2)(Lessee Computations and Entries; Lease with Guaranteed Residual Value) Delaney AG leases an automo
the following terms.
1. Non-cancelable term of 50 months. (4years 2months)
2. Rental of €200 per month (at the beginning of each month). (The present value at 0.5% per month is €8,87
3. Delaney guarantees a residual value of €1,180 (the present value at 0.5% per month is €920). Delaney ex
end of the lease term.
4. Estimated economic life of the automobile is 60 months.(5years)
5. Delaney's incremental borrowing rate is 6% a year (0.5% a month). Simon's implicit rate is unknown.
Instructions
a. What is the present value of the lease payments to determine the lease liability?
The present value of monthly payment € 8,873
The present value of guarantees residual value € 920
.=> PV of the lease payment € 9,793

b. Based on the original fact pattern, record the lease on Delaney's books at the date of commencem
Right of use asset € 9,793
Lease liability € 9,793

c. Record the first month's lease payment (at commencement of the lease).
Interest expense € 48.97
Lease liability € 151.04
Cash € 200

% d. Record the second month's lease payment.

Interest expense € 48
Lease liability € 152
Cash € 200

e. Record the first month's amortization on Delaney's books (assume straight-line).

amortization expense € 195.86
Right of use asset € 195.86

f. Suppose that instead of €1,180, Delaney expects the residual value to be only €500 (the guaranteed
the present value of the lease payments change from part E21.3b.?
.=> There is no change ?
PV of the lease payment € 9,793
Probable residual value 680
PV factor
PV of probable residual value 0
Lessee’s lease liability/right-of-use asset € 9,793

E21.6(LO3)(Lessor Entries; Sales-Type Lease with Option to Purchase) Castle Leasing Company signs a lease agreem
cancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this ag

1. Jan Way has the option to purchase the equipment for $16,000 upon termination of the lease. It is not reasonably certain
2. The equipment has a cost of $120,000 and fair value of $160,000 to Castle Leasing. The useful economic life is 2 years,
3. Castle Leasing desires to earn a return of 5% on its investment.
4. Collectibility of the payments by Castle Leasing is probable
Instructions
a. Prepare the journal entries on the books of Castle Leasing to reflect the payments received under the leas
b. Assuming that Jan Way exercises its option to purchase the equipment on December 31, 2020, prepare th
NOTE 2 5%
Castle Leasing Company REQUIRED 1 :
Lease amortization schedule
Reduction of
Annual Lease
Date Interest lease
payments receivable
receivable Date
Jan 1,2020 $ 160,000 Jan 1,2020
Dec 31,2020 $ 78,244 $ 8,000 $ 70,244 $ 89,756
Dec 31,2021 $ 78,244 $ 4,487.80 $ 73,756 $ 16,000
Dec 31,2021 $ 16,000 $ - $ 16,000 $ -
Lease receivable = ($78,244*1.85941)+($16,000*0.90703)= $ 16
Cost of goods sold ={ $ 120,000 - ($16,000 *0.90703)}= $ 105,48 Dec 31,2020
Sales revenue = {$ 160,000 - ($16,000 -0.90703 ) }= $ 145,488
NOTE 1
Computation of annual payment
Fair value of leased asset to lessor $ 160,000 Dec 31,2021
less: Present value of residual value (5percent, 2y) $ 14,512
Amount to be recovered through lease payment $ 145,488
Two periodic lease payments ($ 145,488 /1.85941) $ 78,244
Present value of an ordinary annuity of $ 1 at 5 % 2 periods is 1.85941 REQUIRED 2 :
Present value of $ 1 at 5 % 2 periods is 0.90703 Date
Dec 31,2021

E21.12(LO2, 3)(Lessee-Lessor Entries; Sales-Type Lease with Bargain Purchase Option) On January 1, 2019, Bense
following information pertains to this lease.
1. The term of the non-cancelable lease is 6 years. At the end of the lease term, Flynn has the option to purc
2. Equal rental payments are due on January 1 of each year, beginning in 2019.
3. The fair value of the equipment on January 1, 2019, is $150,000, and its cost is $120,000.
4. The equipment has an economic life of 8 years. Flynn depreciates all of its equipment on a straight-line ba
5. Bensen set the annual rental to ensure a 5% rate of return. Flynn's incremental borrowing rate is 6%, and
6. Collectibility of lease payments by the lessor is probable.
Instructions
(Both the lessor and the lessee's accounting periods end on December 31.)
a. Discuss the nature of this lease to Bensen.
b. Calculate the amount of the annual rental payment. (by the lessor)

Fair value of lease asset $ 150,000

Less: PV of bargain-purchase option $ 746 Present value of $1 at 5% for 6 periods
.=> PV of lease payment $ 149,254
Six annual lease payment $ 28,005 Present value of an annuity due at 5% for 6 periods.

c. Prepare all the necessary journal entries for Bensen for 2019.

d. Suppose the collectibility of the lease payments was not probable for Bensen. Prepare all necessary journ
e. Prepare all the necessary journal entries for Flynn for 2019.
f. Discuss the effect on the journal entry for Flynn at lease commencement, assuming initial direct costs of $2
aveler plc to lease a car on December 31, 2018. The following information relates to this agreement.
a.
chase option. The remaining economic life of the car Date
m. 31/12/2018

31/12/2019
year of the lease, beginning December 31, 2019.
ng by a constant rate of 5% from the previous
ent will be £6,121.98)
Cách ghi tách

31/12/2019

increase according to a price index. At its current

at would be the impact on the journal entries made
31/12/2020

Ghi tách

31/12/2020

18, Burke Corporation signed a 5-year, non-cancelable lease for a machine. The terms of the lease called for Burke to make
machine has an estimated useful life of 6 years and a $5,000 unguaranteed residual value. The machine reverts back to the
ts plant assets. Burke's incremental borrowing rate is 5%, and the lessor's implicit rate is unknown.

ecessary journal entries for Burke for this lease through December 31, 2019.
count name Debit Credit
ght of use asset (payment) $ 39,404
ase liability $ 39,404

ase liability $ 8,668

$ 8,668

preciation expense $ 7,881

gh of use asset $ 7,881

erest expense $ 1,537

$ 7,131
$ 8,668
aney AG leases an automobile with a fair value of €10,000 from Simon Motors, on

at 0.5% per month is €8,873.)

month is €920). Delaney expects the probable residual value to be €1,180 at the

plicit rate is unknown.

 the date of commencement.
Right of use asset € 10,000
Lease liability € 10,000

nly €500 (the guaranteed amount is still €1,180). How does the calculation of

mpany signs a lease agreement on January 1, 2019, to lease electronic equipment to Jan Way Company. The term of the non-
formation relates to this agreement

It is not reasonably certain that Jan Way will exercise this option.
ul economic life is 2 years, with a residual value of $16,000.

nts received under the lease and to recognize income for the years 2019 and 2020.
ember 31, 2020, prepare the journal entry to record the sale on Castle Leasing's books.

QUIRED 1 :

General journal Debit Credit

Lease receivable (see note 2) $160,000
Cost of goods sold ( see note 2 ) $105,488
              Sales (see note 2 ) $145,488
             Inventory (given ) $120,000
( to record lease )
Cash ( see note 1) $78,244
       Lease receivable ( see note 2 ) $70,244
       Interest revenue (see note 2 ) $8,000
 (to record interest revenue for Dec 2020)
Cash ( see note 1) $78,244
       Lease receivable ( see note 2 ) $73,756
       Interest revenue (see note 2 ) $4,488
(to record interest revenue for Dec 2021)

General journal Debit Credit

Cash $16,000
               Sales revenue $16,000
( to record sale on castle leasing's books )

On January 1, 2019, Bensen Company leased equipment to Flynn Corporation. The

lynn has the option to purchase the equipment for $1,000, while the expected residual value at the end of the lease is $5,000.

pment on a straight-line basis.

borrowing rate is 6%, and the implicit rate of the lessor is unknown.

at 5% for 6 periods.

Prepare all necessary journal entries for the company in 2019.

ming initial direct costs of $2,000 are incurred by Flynn to negotiate the lease.
n relates to this agreement.

Account name Debit Credit

Right of use asset £15,000.00
Lease liability £15,000.00

Lease liability £4,352.82 to record interest expense

Interest expense ( 15,000 x 0.08) £1,200.00
Cash £5,552.82
Interest expense £1,200.00
Lease liability £1,200.00
Lease liability £5,552.82
cash £5,552.82

Depreciation expense £5,000.00 to record amortization of the right-of-use asset

right of use asset £5,000.00

Lease liability £4,978.69

Interest expense ((15,000-4,352.82)x0.08) £851.77
Cash £5,830.46
Interest expense £851.77
Lease liability £851.77
Lease liability £5,830.46
cash £5,830.46
Depreciation expense £5,000.00
Right of use asset £5,000.00

chine. The terms of the lease called for Burke to make

nteed residual value. The machine reverts back to the
sor's implicit rate is unknown.

(To record the lease )

(To record first lease payment )

(To record depreciation of the right of use asset )

tài sản dc chuyển giao cho ng đi thuê thì là chia cho 6, còn
trả lai cho ng cho thuê thì chia cho 5
(To record Interest Expense)
quipment to Jan Way Company. The term of the non-

easing's books.
ected residual value at the end of the lease is $5,000.
f the right-of-use asset