Question

On December 31, 2018, Tracy Co. signed a 4-year, noncancelable lease for a right of use of machine requiring ?150,000 annual payments beginning December 31, 2018. The annual payments include payment for insurance and property taxes amounting to 20,000. On the same date, Tracy Co. paid 40,000 incremental costs that are directly attributable to negotiating and arranging a lease. The machine has a useful life of 8 years, with no salvage value. The rate implicit on the lease is 10%. Tracy Co. guarantees a residual value of ?50,000 at the end of the lease term. The fair value of the machine at the inception of the lease amounted to ?518,561. 1. How much is the initial cost of the right of use asset on December 31, 2018? a. ?487,447 b. ?577,447 c. ?527,447 d. ?495,975 2. How much is the interest expense in 2019? a. ?57,745 b. Nil c. ?52,745 d. ?35,745 3. How much is the lease-related liability to be shown as current in the statement of financial position on December 31, 2018? a. ?94,255 b. ?35,745 c. ?357,447 d. ?263,192 4. How much is the lease-related liability to be shown as noncurrent in the statement of financial position on December 31, 2018? a. ?35,745 b. ?94,255 c. ?263,192 d. ?357,447

          On December 31, 2018, Tracy Co. signed a 4-year, noncancelable lease for a right of use of machine requiring ?150,000 annual payments beginning December 31, 2018. The annual payments include payment for insurance and property taxes amounting to 20,000. On the same date, Tracy Co. paid 40,000 incremental costs that are directly attributable to negotiating and arranging a lease. The machine has a useful life of 8 years, with no salvage value. The rate implicit on the lease is 10%.

Tracy Co. guarantees a residual value of ?50,000 at the end of the lease term. The fair value of the machine at the inception of the lease amounted to ?518,561.

1. How much is the initial cost of the right of use asset on December 31, 2018?

a. ?487,447
b. ?577,447
c. ?527,447
d. ?495,975

2. How much is the interest expense in 2019?

a. ?57,745
b. Nil
c. ?52,745
d. ?35,745

3. How much is the lease-related liability to be shown as current in the statement of financial position on December 31, 2018?

a. ?94,255
b. ?35,745
c. ?357,447
d. ?263,192

4. How much is the lease-related liability to be shown as noncurrent in the statement of financial position on December 31, 2018?

a. ?35,745
b. ?94,255
c. ?263,192
d. ?357,447

On December 31, 2018, Tracy Co. signed a 4-year, noncancelable lease for a right of use of machine requiring ?150,000 annual payments beginning December 31, 2018. The annual payments include payment for insurance and property taxes amounting to 20,000. On the same date, Tracy Co. paid 40,000 incremental costs that are directly attributable to negotiating and arranging a lease. The machine has a useful life of 8 years, with no salvage value. The rate implicit on the lease is 10%.

Tracy Co. guarantees a residual value of ?50,000 at the end of the lease term. The fair value of the machine at the inception of the lease amounted to ?518,561.

1. How much is the initial cost of the right of use asset on December 31, 2018?

a. ?487,447
b. ?577,447
c. ?527,447
d. ?495,975

2. How much is the interest expense in 2019?

a. ?57,745
b. Nil
c. ?52,745
d. ?35,745

3. How much is the lease-related liability to be shown as current in the statement of financial position on December 31, 2018?

a. ?94,255
b. ?35,745
c. ?357,447
d. ?263,192

4. How much is the lease-related liability to be shown as noncurrent in the statement of financial position on December 31, 2018?

a. ?35,745
b. ?94,255
c. ?263,192
d. ?357,447

Added by Rachael L.

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