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Your employer, Sunland Inc., is a large Canadian public company that uses IFRS 16. You have collected the following information about a lease for a fleet of trucks used by Sunland to transport completed products to warehouses across the country. The trucks have an economic life of eight years. The lease term is from July 1, 2020, to June 30, 2027, and the company intends to lease the equipment for this period of time, so the lease term is seven years. The lease payment per year is $521,500, payable in advance, with no other payments required, and no renewal option or purchase option available. The expected value of the fleet of trucks at June 30, 2027, is $433,900; this value is guaranteed by Sunland. The leased trucks must be returned to the lessor at the end of the lease. Sunlands management is confident that, with an aggressive maintenance program, Sunland has every reason to believe that the assets residual value will be more than the guaranteed amount at the end of the lease term. Sunlands incremental borrowing rate is 10%, and the rate implicit in the lease is not known. At the time the lease was signed, the fair value of the leased trucks was $2,792,768.

* Your answer is incorrect. Using time value of money tables, a financial calculator, or Excel functions, determine the PV of the future cash flows under the lease at July 1, 2020. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 5,275.) Present value of the future cash flows under the lease $ 3286573 Using Excel, prepare an amortization schedule for the lease liability over the term of the lease. (Round answers to O decimal places, e.g. 5,275.) Sunland Inc. Lease Amortization Schedule Annual Lease Payments Interest on Unpaid Obligation Reduction of Lease Obligation Balance of Lease Obligation $3,286,573 $ $584,500 $ $584,500 $2,702,073 $ $584,500 ta $ 216,166 $ 368,334 2,333,739 $584,500 186,699 397,801 1,935,93 $584,500 154,875 429,625 1,506,313 $584,500 120,505 463,995 1,042,318 $584,500 83,385 501,115 541,204 $584,500 43,296 541,204 e Textbook and Media Prepare the journal entries and any year-end (December 31) adjusting journal entries made by Sunland Inc. in 2020 and up to and including July 1, 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 Ofor the amounts. Round factor values to 5 decimal places, e.g. 1.25124 and final answers to O decimal places, e.g. 5,275.) Date Account Titles and Explanation Debit Credit July 1, 2020 Equipment Acquired for Lessee 3,286,573 Cash 584,500 Obligations under Lease 2,702,073 (To record inception of lease and first lease payment.) Dec. 31, 2020 Interest Expense 108083 Interest Payable 108083 Interest Payable 108083 (To record interest.) Dec. 31, 2020 Depreciation Expense 234755 Accumulated Depreciation - Leased Equipment 234755 (To record depreciation expense.) July 1, 2021 Insurance Expense 216,166 Obligations under Lease 368,334 Cash 584,500 (To record lease payment.) X Your answer is incorrect. Immediately after the July 1, 2021 lease payments, based on the feedback of the staff in operations, management reassesses its expectations for the guaranteed residual value. Management now estimates the fleet of trucks to have a residual value of $384,250 with a 50% probability and $290,300 with a 50% probability. Calculate the probability-weighted expected value of the residual at the end of the lease term. Also calculate the PV at July 1, 2021, of any additional cash flows related to the residual value guarantee. (Round answers to 0 decimal places, e.g. 5,275.) Probability-weighted expected value of residual $ 390995 Additional cash flows $ 87705 Immediately after the July 1, 2021 lease payments, based on the feedback of the staff in operations, management reassesses its expectations for the guaranteed residual value. Management now estimates the fleet of trucks to have a residual value of $384,250 with a 50% probability and $290,300 with a 50% probability. Revise the amortization schedule effective July 1, 2021, for the lease, including any liability related to the residual value guarantee. (Round answers to 0 decimal places, e.g. 5,275. Do not leave any answer field blank. Enter O for amounts.) Sunland Inc. Lease Amortization Schedule-Revised July 1, 2021 Annual Lease Payments Interest on Unpaid Obligation Reduction of Lease Obligation Balance of Lease Obligation $ $3,286, $ $584,500 $ $ $ $584,500 $2,702, II $584,500 368,334 2,333, Management now estimates the fleet of trucks to have a residual value of $384,250 with a 50% probability and $290,300 with a 50% probability. Prepare the year-end adjusting journal entries made by Sunland Inc. for fiscal year 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 O for the amounts. Round answers to 0 decimal places, e.g. 5,275.) Date Account Titles and Explanation Debit Credit Dec. 31, 2021 Insurance Expense 0 Interest Payable (To record interest.) Dec. 31, Depreciation Expense 0 2021 Accumulated Depreciation - Leased Equipment

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