Crane Manufacturing Ltd. agrees to lease equipment to Pina Colada Ltée. on July 15, 2023, Crane follows ASPE and Pina Colada is a public company following IFRS. The following information relates to the lease agreement: 1. 2. 3. 4. 5. 7. The lease term is seven years, with no renewal option, and the equipment has an estimated economic life of nine years. The equipment's cost is $414,000 and the asset's fair value on July 15, 2023, is $539.100. At the end of the lease term, a payment to Crane, the lessor, in the amount of $75,000 is expected to be payable by Pina Colada, the lessee, under a residual value guarantee. Pina Colada depreciates all of its equipment on a straight-line basis. The lease agreement requires equal annual rental payments beginning on July 15, 2023. Crane usually sells its equipment to customers who buy the product outright, but Pina Colada was unable to get acceptable financing for a cash purchase. Crane's credit investigation on Pina Colada revealed that the company's financial situation was deteriorating. Because Pina Colada had been a good customer many years ago, Crane agreed to enter into this lease agreement, but used a higher-than-usual 10% interest rate in setting the lease payments. Pina Colada is aware of this rate. Crane is uncertain about what additional costs it might have to incur in connection with this lease during the lease term, although Pina Colada has agreed to pay all executory costs directly to third parties. Crane incurred legal costs of $2,500 in early July 2023 in finalizing the lease agreement.
Crane Manufacturing Ltd. agrees to lease equipment to Pina Colada Ltée. on July 15, 2023, Crane follows ASPE and Pina Colada is a public company following IFRS. The following information relates to the lease agreement: 1. 2. 3. 4. 5. 7. The lease term is seven years, with no renewal option, and the equipment has an estimated economic life of nine years. The equipment's cost is $414,000 and the asset's fair value on July 15, 2023, is $539.100. At the end of the lease term, a payment to Crane, the lessor, in the amount of $75,000 is expected to be payable by Pina Colada, the lessee, under a residual value guarantee. Pina Colada depreciates all of its equipment on a straight-line basis. The lease agreement requires equal annual rental payments beginning on July 15, 2023. Crane usually sells its equipment to customers who buy the product outright, but Pina Colada was unable to get acceptable financing for a cash purchase. Crane's credit investigation on Pina Colada revealed that the company's financial situation was deteriorating. Because Pina Colada had been a good customer many years ago, Crane agreed to enter into this lease agreement, but used a higher-than-usual 10% interest rate in setting the lease payments. Pina Colada is aware of this rate. Crane is uncertain about what additional costs it might have to incur in connection with this lease during the lease term, although Pina Colada has agreed to pay all executory costs directly to third parties. Crane incurred legal costs of $2,500 in early July 2023 in finalizing the lease agreement.
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter20: Accounting For Leases
Section: Chapter Questions
Problem 1P: Determining Type of Lease and Subsequent Accounting On January 1, 2019, Ballieu Company leases...
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Transcribed Image Text:Prepare the journal entries that Pina Colada would make in 2023 and 2024 related to the lease arrangement, assuming that the
company has a December 31 fiscal year end and that it does not use reversing entries. (List all debit entries before credit entries.
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 O decimal places, e.g. 5,275.)
Account Titles and Explanation
Date
July 15, 2023
4
V
Dec 31, 2023
Right-of-Use Asset
Lease Liability
Cash
Depreciation Expense
Sonceristing-Right-of-Use Asset
Debit
539100
30388
Crec
JUU
Transcribed Image Text:Crane Manufacturing Ltd. agrees to lease equipment to Pina Colada Ltée. on July 15, 2023. Crane follows ASPE and Pina Colada is a
public company following IFRS. The following information relates to the lease agreement:
1.
2.
3.
4.
5.
6.
7.
The lease term is seven years, with no renewal option, and the equipment has an estimated economic life of nine years.
The equipment's cost is $414,000 and the asset's fair value on July 15, 2023, is $539.100.
At the end of the lease term, a payment to Crane, the lessor, in the amount of $75,000 is expected to be payable by Pina
Colada, the lessee, under a residual value guarantee. Pina Colada depreciates all of its equipment on a straight-line basis.
The lease agreement requires equal annual rental payments beginning on July 15, 2023.
Crane usually sells its equipment to customers who buy the product outright, but Pina Colada was unable to get acceptable
financing for a cash purchase. Crane's credit investigation on Pina Colada revealed that the company's financial situation was
deteriorating. Because Pina Colada had been a good customer many years ago, Crane agreed to enter into this lease
agreement, but used a higher-than-usual 10% interest rate in setting the lease payments. Pina Colada is aware of this rate.
Crane is uncertain about what additional costs it might have to incur in connection with this lease during the lease term,
although Pina Colada has agreed to pay all executory costs directly to third parties.
Crane incurred legal costs of $2,500 in early July 2023 in finalizing the lease agreement.
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