Terms of warehouse contract with PremierStorage:-The warehouse lease began on January 1, 2018, with...Terms...

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Accounting

Terms of warehouse contract with PremierStorage:
-The warehouse lease began on January 1, 2018, with a three-yearterm. The warehouse has an expected remaining useful life of 20years. There is no provision in the contract for Chariot to obtainownership of the warehouse.
-During the lease, Chariot has exclusive control over the entirewarehouse building and surrounding property.
-Chariot agreed to lease payments of: $500,000 in 2018, $600,000in 2019 and $700,000 in 2020. Payments are due on December 31 ofeach year with the first payment being made on December 31, 2018.Chariot is aware that Premier used a 5% interest rate whencalculating the lease payments. Note: while the terms of thelease require uneven payment amounts, Chariot should amortize theright-of-use asset on a straight-line basis (as if all threepayments were $600,000); this does not affect the amortization ofthe lease liability.
-The fair value of the warehouse is approximately $20million.
For the warehouse lease, provide answers to thefollowing questions:
1. Prepare an amortization schedule for the right-of-use assetand the lease liability.
2. Identify the journal entries Chariot would prepare to recordthe lease under the new lease accounting standard on:
January 1, 2018
December 31, 2018
December 31, 2019
December 31, 2020
3. Show how the warehouse lease contract would appear on theDecember 31, 2018 year-end Income Statement, Balance Sheet, andStatement of Cash Flows under the new lease accountingstandard.

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3.7 Ratings (610 Votes)

1This is an Operational Lease as it covers only 320Years oflife of assetContract doesnt contain to aquire ownership atlower cost than fair value at the end of lease periodCalculating Present Value of Minimum leasepaymentTo recognise as an assetYearCashflowDiscount factorPresent Value150000095247600260000090754420370000086360410Minimum vale ofLease See Answer

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In: AccountingTerms of warehouse contract with PremierStorage:-The warehouse lease began on January 1, 2018, with...Terms of warehouse contract with PremierStorage:-The warehouse lease began on January 1, 2018, with a three-yearterm. The warehouse has an expected remaining useful life of 20years. There is no provision in the contract for Chariot to obtainownership of the warehouse.-During the lease, Chariot has exclusive control over the entirewarehouse building and surrounding property.-Chariot agreed to lease payments of: $500,000 in 2018, $600,000in 2019 and $700,000 in 2020. Payments are due on December 31 ofeach year with the first payment being made on December 31, 2018.Chariot is aware that Premier used a 5% interest rate whencalculating the lease payments. Note: while the terms of thelease require uneven payment amounts, Chariot should amortize theright-of-use asset on a straight-line basis (as if all threepayments were $600,000); this does not affect the amortization ofthe lease liability.-The fair value of the warehouse is approximately $20million.For the warehouse lease, provide answers to thefollowing questions:1. Prepare an amortization schedule for the right-of-use assetand the lease liability.2. Identify the journal entries Chariot would prepare to recordthe lease under the new lease accounting standard on:January 1, 2018December 31, 2018December 31, 2019December 31, 20203. Show how the warehouse lease contract would appear on theDecember 31, 2018 year-end Income Statement, Balance Sheet, andStatement of Cash Flows under the new lease accountingstandard.