Wildhorse Leasing Corporation, which uses IFRS 16, signs a lease agreement on January 1, 2020, to lease electronic equipment to Wai Corporation, which also uses IFRS 16. The term of the non-cancellable lease is two years and payments are required at the end of each year. The following information relates to this agreement.
1. Wai Corporation has the option to purchase the equipment for $11,000 upon the termination of the lease and this option is reasonably certain to be exercised.
2. The equipment has a cost and fair value of $175,000 to Wildhorse Leasing Corporation. The useful economic life is two years, with a residual value of $11,000.
3. Wai Corporation is required to pay $5,500 each year to the lessor for insurance costs.
4. Wildhorse Leasing Corporation wants to earn a return of 10% on its investment.
5. Collectibility of the payments is reasonably predictable, and there are no important uncertainties surrounding the costs that have not yet been incurred by the lessor.
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Using time value of money tables, a financial calculator, or Excel functions, calculate the lease payment that Wildhorse Leasing would require from Wai Corporation. (Hint: You may find the ROUND formula helpful for rounding in Excel.) (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 2 decimal places, e.g. 52.75.)
Lease payments $Enter your answer in accordance to the question statement
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Prepare a lease amortization schedule for Wildhorse Leasing for the term of the lease. (Round answers to 0 decimal places, e.g. 52,754.)
WILDHORSE LEASING CORPORATION (Lessor)
Lease Amortization Schedule
Date Annual Payment
Excluding
Executory Costs Interest
on Net
Investment Net
Investment
Recovery Net
Investment
1/1/20 $
12/31/20 $
$
$
12/31/21
$
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Prepare the journal entries on Wildhorse Leasings books to reflect the payments received under the lease and to recognize income for the years 2020 and 2021. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 52,754.)
Date
Account Titles and Explanation
Debit
Credit
(To record inception of lease.)
(Collection of lease payment.)
(To record interest.)
(Collection of lease payment.)
(To record interest.)
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Assuming that Wai Corporation exercises its option to purchase the equipment on December 31, 2021, prepare the journal entry to reflect the sale on Wildhorse Leasings books. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 52,754.)
Date
Account Titles and Explanation
Debit
Credit
12/31/21
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What amount would Wai Corporation capitalize and recognize as a lease liability and corresponding right-to-use asset on signing the lease? (Round answer to 0 decimal places, e.g. 52,257.)
Amount
