Boerne Inc entered into a one-
Boerne Inc entered into a one-year contract to lease equipmentfrom Spring Branch Leasing on January 1, 2018. The fair value ofthe leased equipment at the inception of the lease was $600,000.Lease term 1 year (4 quarterly periods) Quarterly lease payments$30,000 at Jan. 1, 2018, and at April 1, July 1, and Oct 1.Economic life of asset 5 years Interest rate charged by the lessor10%
Required: Boerne elected the short-term lease option.Appropriate adjusting entries are made annually. Prepareappropriate entries for Chance from for the first two quarters of2018.
Answer:
ASC 842, Leases, was added by ASU 2016-02 on February 25, 2016.It is effective for public business entities for annual periodsbeginning after December 15, 2018 (i.e., calendar periods beginningon January 1, 2019), and interim periods therein. For all otherentities, ASC 842 will be effective for annual periods beginningafter December 15, 2019 (i.e., calendar periods beginning onJanuary 1, 2020), and interim periods thereafter. Early adoptionwill be permitted for all entities.
Operating lease accounting – as the risks andrewards of ownership of an asset are not transferred in the case ofan operating lease, an asset is not recognized in the statement offinancial position. Instead rentals under operating leases arecharged to the statement of profit or loss on a straight-line basisover the term of the lease, any difference between amounts chargedand amounts paid will be prepayments or accruals.
Appropriate entries for Chance from for the first two quartersof 2018.
1 Jan 2018:
Dr Lease expense (statement of profit or loss) $30,000
CrBank $30,000
1 Apr 2018:
Dr Lease expense (statement of profit or loss) $30,000
CrBank $30,000
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