n January 1, 2020, Crane Corp., which uses IFRS, signs a10-year, non-cancellable lease agreement to lease a specialty lathefrom Liu Inc. The following information concerns the leaseagreement.
| 1. | | The agreement requires equal rental payments of $95,654beginning on January 1, 2020. |
| 2. | | The lathe’s fair value on January 1, 2020, is $610,000. |
| 3. | | The lathe has an estimated economic life of 12 years, with anunguaranteed residual value of $16,000. Crane Corp. depreciatessimilar equipment using the straight-line method. |
| 4. | | The lease is non-renewable. At the termination of the lease,the lathe reverts to the lessor. |
| 5. | | Crane’s incremental borrowing rate is 11% per year. Thelessor’s implicit rate is not known by Crane Corp. |
| 6. | | The yearly rental payment includes $2,339.70 of executory costsrelated to insurance on the lathe. |
Click here to view the factor table PRESENT VALUE OF 1.
Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF1.
Assume that Crane’s fiscal year end is May 31. Prepare the journalentries on Crane Corp.’s books to reflect the signing of the leaseagreement and to record payments and expenses related to this leasefor the calendar years 2020 and 2021. Crane does not preparereversing entries. (Credit account titles areautomatically indented when the amount is entered. Do not indentmanually. If no entry is required, select "No Entry" for theaccount titles and enter 0 for the amounts. Round answers to 2decimal places, e.g. 52.75.)
Date | Account Titles and Explanation | Debit | Credit |
|---|
1/1/20 | Insurance Expenses | enter a debit amount | enter a credit amount |
|---|
| Right of asset | enter a debit amount | enter a credit amount |
|---|
| Prepaid Insurance | enter a debit amount | enter a credit amount |
|---|
| cash | enter a debit amount | enter a credit amount |
|---|
| lease liability | enter a debit amount | enter a credit amount |
|---|
| (To record lease payment.) | | |
5/31/20 | Depreciation expenses | enter a debit amount | enter a credit amount |
|---|
| Accumulated Depreciation- Right Of Asset | enter a debit amount | enter a credit amount |
|---|
| (To record depreciation expense.) | | |
5/31/20 | Interest expenses | enter a debit amount | enter a credit amount |
|---|
| Lease Liabilty | enter a debit amount | enter a credit amount |
|---|
| (To record interest.) | | |
12/31/20 | Insurance Expenses | enter a debit amount | enter a credit amount |
|---|
| prepaid insurance | enter a debit amount | enter a credit amount |
|---|
| (To record expired insurance.) | | |
1/1/21 | Insurance Expenses | enter a debit amount | enter a credit amount |
|---|
| Interest expenses | enter a debit amount | enter a credit amount |
|---|
| prepaid insurance | enter a debit amount | enter a credit amount |
|---|
| lease liability | enter a debit amount | enter a credit amount |
|---|
| cash | enter a debit amount | enter a credit amount |
|---|
| (To record lease payment.) | | |
5/31/21 | depreciation expenses | enter a debit amount | enter a credit amount |
|---|
| Accumulated Depreciation | enter a debit amount | enter a credit amount |
|---|
| (To record depreciation expense.) | | |
5/31/21 | interest expenses | enter a debit amount | enter a credit amount |
|---|
| lease liability | enter a debit amount | enter a credit amount |
|---|
| (To record interest.) | | |
12/31/21 | insurance expenses | enter a debit amount | enter a credit amount |
|---|
| prepaid insurance | enter a debit amount | enter a credit amount |
|---|
| (To record expired insurance.) | |
