Q2.

Problem 12-18 Accounting for lessee with uneven payments under ASU 2016-02 and IFRS 16 (LO 12-1, LO 12-
5, LO 12-6)
On January 1, 2017, Dwyer Company leases space for a donut shop. The lease is for five years with payments to be made at the
beginning of each year. The lease calls for Dwyer to pay $10,000 on January 1, 2017, $11,000 on January 1, 2018, $12,500 on
January 1, 2019, $14,000 on January 1, 2020, and $16,000 on January 1, 2021.  Dwyer has adopted early ASC 842 and has
appropriately classified the lease as an operating lease. Dwyer has a calendar reporting year and an incremental borrowing rate
of 8%. Dwyer uses straight-line depreciation for its long-lived assets. Ignore current and noncurrrent classification for this
exercise. Use tables (PV of 1, PVAD of 1, and PVOA of 1) (Use the appropriate factor(s) from the tables provided.)
Required:

1. What journal entries should Dwyer make at January 1, 2017, to record the effects of the lease?

= use PV1 table / the table that I make 4 columns and no.years+2 rows

Payment no Payment amount Discount factor (8%) Pv= pay * factor

= total pv
Journals :-

right of use assets Operating lease liab

Operating lease liab Cash

2. Prepare Dwyer’s amortization table for the leased shop .

the table that I make 5 columns and no.years+2 rows / if begging of year no interest the first year

Date Total Payment Interest (8 %) Principal Reduction Balance

3. What journal entries would Dwyer make on December 31, 2017, to record the effects of the lease?

lease exp = total payment / years

Op lease liab (interest next years )

ROU assets (exp-lib)

4. What is the balance of the right-of-use asset and the lease obligation on January 1, 2019, after Dwyer
makes the rent payment? The table that I make 5 columns and no.years+ 2 rows

Lease obligation = the balance from the amortize for the year

Date Lease exp Intrest exp (from ROU reduction ROU balance
anutiz)
1/1/17 - - - pv
31/12/17
31/12/18

Q4. Problem 12-3 Accounting for lessees' capital leases under ASC 840 (LO 12-3, LO 12-5)
 On January 1, 2017, Seven Wonders Inc. signed a five-year noncancelable lease with Moss Company. The lease calls for five
payments of $277,409.44 to be made at the end of each year. The leased asset has a fair value of $1,200,000 on January 1, 2017.
Seven Wonders cannot renew the lease, there is no bargain purchase option, and ownership of the leased asset reverts to Moss at
the lease end. The leased asset has an expected useful life of six years, and Seven Wonders uses straight-line depreciation for
financial reporting purposes. Its incremental borrowing rate is 12%. Moss’s implicit rate of return on the lease is unknown. Seven
Wonders uses a calendar year for financial reporting purposes. Both companies use ASC 840 to account for leases. Use tables
(PV of 1, PVAD of 1, and PVOA of 1) (Use the appropriate factor(s) from the tables provided.)
 
Required:

2. Prepare an amortization schedule for the lease liability.

the table that I make 5 columns and no.years+2 rows

Present value of future lease payments = payment x dis factor = pv (use PVOA)

Date Cash Payment Interest (12%) Reduction Obligation Lease Obligation

3. Prepare the journal entry to record.

a. The lease as a capital lease on January 1, 2017.

DR Leased assets—capital leases(pv)
CR Obligations under capital leases(pv)

b. The lease payments on December 31, 2017 and 2018.

12/31/2017: 12/31/2018:
DR Interest expense DR Interest expense
DR Obligations under capital leases DR Obligations under capital leases
CR Cash CR Cash

c. The leased asset’s depreciation in 2017 and 2018.

2017 and 2018:
DR Depreciation expense ( pv / years)
CR Accumulated depreciation—leased assets

4. What is the total amount of expense reported on Seven Wonders’ 2017 income
statement from the lease? 2017 total exp = dep exp +intrest exp
Q13. Exercise 16-11 Consolidated balances using the acquisition method (LO 16-5)
Sea Company purchased 60% of Island Company’s common stock for $180,000. On the acquisition date, Island’s
book value of net assets totaled $250,000 and the fair value of identifiable net assets totaled $275,000. The $25,000
excess of fair value over book value on the acquisition date is attributable to fixed assets. Sea appropriately uses the
acquisition method to account for the business combination. Immediately after acquisition, Sea Company’s and
Island Company’s separate condensed balance sheets are as follows:

Sea Island
   Company Company
Other assets   $ 750,000     $ 320,000  

Investment in Island Company     180,000       0  

    $ 930,000     $ 320,000  

Liabilities   $ 250,000     $ 70,000  

Common stock     450,000       200,000  

Retained earnings     230,000       50,000  

    $ 930,000     $ 320,000  

 Required:

1. What is the dollar amount of the total assets in the consolidated balance sheet immediately after the
acquisition? 1,120,000

2. What is the dollar amount of the noncontrolling interest in the consolidated balance sheet immediately after
the acquisition? Assume that the noncontrolling interest fair value is imputed based on Sea’s acquisition
price. 120,000

( 1) Cs ( from the lessor table )

RE ( from the lessor table )
Invest island (cs+re*%) Conciliated b/s
Non control (cs+re*100-%) Other assets
-------------------------- Invest island
(2) (invest from table *100 / % ) – (cs+re)=total excess Goodwill
Other assets (cridet amount –(excess from OA from q *%) ) = total assets
Goodwill (Invest island - Other assets ) Liabilities
Invest island ( total excess * % ) Commen stock
------------------------- RE
(3) Other assets (cridet amount –(excess from OA from q * 100 -
Non control intrest
%) )
Goodwill (non controlling - Other assets ) = total liab+equity
Non controlling ( total excess * 100-% )
Q5. Exercise 12-6 Accounting for a sales-type lease under ASC 840 (LO 12-7, LO 12-8)
Benedict Company leased equipment to Mark Inc. on January 1, 2017. The lease is for an eight-
year period, expiring December 31, 2024. The first of eight equal annual payments of $600,000
was made on January 1, 2017. Benedict had purchased the equipment on December 29, 2016, for
$3,200,000. The lease is appropriately accounted for as a sales-type lease by Benedict. Assume
that at January 1, 2017, the present value of all rental payments over the lease term discounted at
a 10% interest rate was $3,520,000.
 
Required:
What amount of interest income should Benedict record in 2018 (the second year of the lease
period) as a result of the lease? Beginig 2019 = ending 2019

Date Payment Interest (8 %) Principal Reduction Balance

 Capital Lease (ASC 840) Operating Lease(ASC 842)
Lease criteria - Ownership of the asset might be Ownership is retained by the lessor during
Ownership transferred to the lessee at the end of and after the lease term.
the lease term.

Lease criteria - The lease contains a bargain The lease cannot contain a bargain
Bargain purchase option to buy the equipment purchase option.
Purchase at less than fair market value.
Option

Lease criteria - The lease term equals or exceeds The lease term is less than 75 percent of
Term 75% of the asset's estimated useful the estimated economic life of the
life equipment

Lease criteria - The present value of the lease The present value of lease payments is
Present Value payments equals or exceeds 90% of less than 90 percent of the equipment's
the total original cost of the fair market value
equipment.

Risks and Transferred to lessee. Lessee pays Right to use only. Risk and benefits
Benefits maintenance, insurance and taxes remain with lessor. Lessee pays
maintenance costs

1- Minority passive 0-20%

2- Minority active 20-50%
3- Majority active(non controlling ) 50-99%
4- Majority controlling 100%