Exercise 20-14 Sandhill Corporation is a machinery dealer whose shares trades on
ID: 2546950 • Letter: E
Question
Exercise 20-14
Sandhill Corporation is a machinery dealer whose shares trades on the TSX, and so uses IFRS 16. Sandhill leased a machine to Ernst Ltd. on January 1, 2017. The lease is for a six-year period and requires equal annual payments of $24,861 at the beginning of each year. The first payment is received on January 1, 2017. Sandhill had purchased the machine for its inventory during 2016 for $100,200. Collectibility of lease payments is reasonably predictable, and no important uncertainties exist about costs that have not yet been incurred by Sandhill. Sandhill set the annual rental amount to ensure an 12% rate of return. The machine has an economic life of six years, with no residual value, and reverts to Sandhill at the termination of the lease.
Click here to view the factor table.
SHOW LIST OF ACCOUNTS
LINK TO TEXT
Date
Account Titles and Explanation
Debit
Credit
1/1/17
(To record inception of lease & cost of goods sold)
SHOW LIST OF ACCOUNTS
LINK TO TEXT
SAVE FOR LATER
SUBMIT ANSWER
Exercise 20-14
Sandhill Corporation is a machinery dealer whose shares trades on the TSX, and so uses IFRS 16. Sandhill leased a machine to Ernst Ltd. on January 1, 2017. The lease is for a six-year period and requires equal annual payments of $24,861 at the beginning of each year. The first payment is received on January 1, 2017. Sandhill had purchased the machine for its inventory during 2016 for $100,200. Collectibility of lease payments is reasonably predictable, and no important uncertainties exist about costs that have not yet been incurred by Sandhill. Sandhill set the annual rental amount to ensure an 12% rate of return. The machine has an economic life of six years, with no residual value, and reverts to Sandhill at the termination of the lease.
Click here to view the factor table.
1. Gross investment $ 2. Unearned interest income $ 3. Net investment in the lease $
SHOW LIST OF ACCOUNTS
LINK TO TEXT
Prepare all necessary journal entries for Sandhill for 2017. (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. 5,275.)Date
Account Titles and Explanation
Debit
Credit
1/1/17
(To record inception of lease & cost of goods sold)
1/1/1712/31/17
SHOW LIST OF ACCOUNTS
LINK TO TEXT
Question Attempts: 0 of 3 usedSAVE FOR LATER
SUBMIT ANSWER
Explanation / Answer
Journal Entry in the books of Sandhil Corporation Date Account & Explanation Debit Credit 01/01/2017 Lease Receivable $149,166.00 Cost of Goods Sold $100,200.00 Sales $114,480.00 Inventory $100,200.00 Unearned Interest Income 34686 To Record inception of lease & Cost of Goods Sold) 01/01/2017 Cash $24,861.00 Lease Receivable $24,861.00 ( Record First Lease rent Payment received) 31/12/2017 Unearned Interest income $10,754.00 Interest Revenue $10,754.00 ($114480-24861))*12% (Record Interest Income) Computation of Fair Value of Lease Annual Rental $24,861 Cumm PVF @12% for 6 Year 4.60478 Fair Value Value of Lease Receivable (Round Off) $114,480.00 1 Gross Investment in Lease ( $24861*6) $149,166 2 Uneraned Interest Income ($149166-$114480) $34,686 3 Net Investment in the Lease $114,480
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.