On January 1, 2020, Bonita Ltd. entered into an agreement to lease a truck from Swifty Ltd. Both Bonita and Swifty use IFRS 16. The details of the agreement are as follows: Carrying value of truck for Swifty Ltd. Fair value of truck Economic life of truck Lease term Rental payments (at beginning of each month) Executory costs included in rental payments each month for insurance Incremental borrowing rate for Bonita Ltd. $22,282 $22,282 5 years 3 years $675 $22 12% Bonita Ltd. expects to pay Swifty Ltd. $3,470 under a residual value guarantee for the truck. Additional information: 1. There are no abnormal risks associated with the collection of lease payments from Bonita. 2. There are no additional unreimbursable costs to be incurred by Swifty in connection with the leased truck. 3. At the end of the lease term, Swifty sold the truck to a third party for $3,130, which was the truck's fair value at December 31, 2022. Bonita paid Swifty the difference between the guaranteed residual value of $3,470 and the proceeds obtained on the resale. 4. Bonita knows the interest rate that is implicit in the lease. 5. Bonita knows the amount of executory costs included in the minimum lease payments. 6. Bonita uses straight-line depreciation for its trucks with the residual value guarantee of $3,470 for the leased truck.

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

Chapter17: Advanced Issues In Revenue Recognition

Section: Chapter Questions

Problem 9MC

See similar textbooks

Related questions

Question

Jan 1 2020, cash 653 (incorrect amount)
Jan 1 2020, lease Receivable 21629 (incorrect amount)
Jan 1 2020, Equipment under lease (incorrect name)
Jan 1 2020, Cash 22 (incorrect name and number)
Jan 1 2020, Insurance Payable 22 (incorrect name)
Dec 31,2020 Cash 2132 (incorrect name)

please give correct entries and answers

On January 1,2020, Bonita Ltd. entered into an agreement to lease a truck from Swifty Ltd. Both Bonita and Swifty use IFRS 16. The
details of the agreement are as follows:
Carrying value of truck for Swifty Ltd.
$22,282
Fair value of truck
$22,282
Economic life of truck
5 years
Lease term
Зуears
Rental payments (at beginning of each month)
$675
Executory costs included in rental payments each month for insurance
$22
Incremental borrowing rate for Bonita Ltd.
12%
Bonita Ltd. expects to pay Swifty Ltd. $3,470 undera residual value guarantee for the truck.
Additional information:
1.
There are no abnormal risks associated with the collection of lease payments from Bonita.
2.
There are no additional unreimbursable costs to be incurred by Swifty in connection with the leased truck.
At the end of the lease term, Swifty sold the truck to a third party for $3,130, which was the truck's fair value at December
31, 2022. Bonita paid Swifty the difference between the guaranteed residual value of $3,470 and the proceeds obtained on
3.
the resale.
4.
Bonita knows the interest rate that is implicit in the lease.
5.
Bonita knows the amount of executory costs included in the minimum lease payments.
6.
Bonita uses straight-line depreciation for its trucks with the residual value guarantee of $3,470 for the leased truck.

Prepare the journal entries that Swifty would make on January 1, 2020, and the adjusting journal entries at December 31, 2020,
to record the annual interest income from the lease arrangement, assuming that Swifty has a December 31 fiscal year end. (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, eg. 5,275.)
Date
Account Titles and Explanation
Debit
Credit
Jan. 1,
Cash
653
2020
Lease Receivable
21629
Equipment under Lease
22282
Cash
22
Insurance Payable
22
Dec.
31,
Cash
2132
2020
Interest Income
2132
(To record interest.)
Dec.
31,
Interest Receivable
166
2020
Interest Income
166
(To record accrued interest.)

Expert Solution

Step by step

Solved in 3 steps with 3 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.