Brief Exercise 20-6 Cullumber Ltd., a public company following IFRS 16, recently

Question

Brief Exercise 20-6 Cullumber Ltd., a public company following IFRS 16, recently signed a lease for equipment from Costner Ltd. The lease term is 3 years and requires equal rental payments of $40,097 at the beginning of each year. The equipment has a fair value at the lease's inception of $111,600, an estimated useful life of 3 years, and no residual value. Cullumber pays all executory costs directly to third parties. The appropriate interest rate is 8% Click here to view the factor table Using tables, a financial calculator, or Excel functions, calculate the amount of the right-of-use asset and lease liability and prepare the initial entry to reflect the signing of the lease agreement and the first payment under the lease. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 5,275.) Account Titles and Explanation Debit Credit

Explanation / Answer

The amount of the right-to-use asset and lease liability will be equal to the present value of the rental payments made at the beginning of each year.

Present value factor of annuity due of $1 per period at 8% for 3 periods = 2.78326 [Calculate the present value factor in MS Excel using the formula =PV(8%,3,-1,0,1)]

Rental payment = $40,097

Therefore,

Amount of the right-to-use asset and lease liability = $40,097 x 2.78326 = $111,600

Initial entry to reflect the sigining of the lease agreement will be prepared as follows:

Entry for the first payment under the lease will be prepared as follows:

The first lease will payment will not include any interest as it is made at the inception of the lease agreement.

Account Titles and Explanation Debit Credit Right-of-use asset 111,600            Lease liability 111,000

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.