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3 years ago

On 1 July 2019, Fisher Ltd decides to lease a cargo ship from XFinance Ltd. The term of the lease is 20

Business

1 answer:

Alla [95]3 years ago

4 0

Answer:

a. FV of Lease Payment=2215552

b. Debit Credit

Recognition of Lease

01-Jul-19 ROU Asset $2215560

Lease Liability $2215560

30-Jun-20 Recording Lease Payment

Lease Liability $225000

Lease Expense $25000

Bank $250000

30-Jun-20 Recording Interest

Interest Expense $199056

Lease Liability $199056

c. Debit Credit

Recognition of Lease

Lease Receivable $2215560

ROU Asset $2215560

30-Jun-20 Recording Lease receipt

Bank $250000

Fisher Ltd $25000

Lease Receivable $225000

30-Jun-20 Maintainace Expense

Lease Expense$25000

Bank $25000

Fisher Ltd $25000

Lease Expense $25000

30-Jun-20 Recording Interest

Lease Receivable $199056

Interest Expense $199056

Explanation:

According to the given data Interest rate implict in the lease = 10%

Year Lease Discounting PV of Lease Payment

Factor 10%

0 300000 1.0000 300000

1 225000 0.9091 204545

2 225000 0.8264 185950

3 225000 0.7513 169046

4 225000 0.6830 153678

5 225000 0.6209 139707

6 225000 0.5645 127007

7 225000 0.5132 115461

8 225000 0.4665 104964

9 225000 0.4241 95422

10 225000 0.3855 86747

11 225000 0.3505 78861

12 225000 0.3186 71692

13 225000 0.2897 65174

14 225000 0.2633 59250

15 225000 0.2394 53863

16 225000 0.2176 48967

17 225000 0.1978 44515

18 225000 0.1799 40468

19 225000 0.1635 36789

20 225000 0.1486 33445

a. FV of Lease Payment=2215552

b. Journal Entry In the books of Fisher Ltd.

Debit Credit

Recognition of Lease

01-Jul-19 ROU Asset $2215560

Lease Liability $2215560

30-Jun-20 Recording Lease Payment

Lease Liability $225000

Lease Expense $25000

Bank $250000

30-Jun-20 Recording Interest

Interest Expense $199056

Lease Liability $199056

c.Journal Entry

Debit Credit

Recognition of Lease

Lease Receivable $2215560

ROU Asset $2215560

30-Jun-20 Recording Lease receipt

Bank $250000

Fisher Ltd $25000

Lease Receivable $225000

30-Jun-20 Maintainace Expense

Lease Expense$25000

Bank $25000

Fisher Ltd $25000

Lease Expense $25000

30-Jun-20 Recording Interest

Lease Receivable $199056

Interest Expense $199056

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Power Corporation acquired 100 percent ownership of Scrub Company on February 12, 20X9. At the date of acquisition, Scrub Compan

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Answer:

a. See the journal entries in the explanation below.

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Goodwill is $25,000

b. See the journal entries in the explanation below.

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Capital Reserve is $4,000

Explanation:

Note: There are mistakes the names of the companies in the requirements a anb b. These correctly restated before answering the question by as follows:

a. Prepare the following consolidation entries required to prepare a consolidated balance sheet immediately after the business combination assuming Power acquired its ownership of Scrub for $291,000. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1. Record the basic consolidation entry

2. Record the excess value (differential reclassification entry)

b. Prepare the following consolidation entries required to prepare a consolidated balance sheet immediately after the business combination assuming Power acquired its ownership of Scrub for $262,000. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1. Record the basic consolidation entry.

2. Record the excess value (differential) reclassification entry.

The answers and explanation are therefore given as follows:

a. Prepare the following consolidation entries required when Consideration is $291,000

1. Record the basic consolidation entry

Accounts Dr ($) Cr ($)

Common Stock 91,000

Retained Earnings (w.1) 175,000

Goodwill (w.2) 25,000

Investment in Scrub Company 291,000

(To record the elimination of investment and stockholder equity.)

2. Record the excess value (differential reclassification entry)

Note that $25,000 is transferred to Goodwill account in part 1 above.

The $25,000 is transferred to Goodwill because when the consideration is greater than the net asset value which is calculated as the of Common Stock and Retained Earnings, the difference is the Goodwill.

When Net Consideration is more than the net asset value (Stockholder Equity), then the difference is to be transferred to Goodwill.

Workings:

w.1: Calculation of retained earning to be eliminated

Particulars $

Retained Earnings Balance 160,000

Increase in land value 21,000

Decrease in inventories values (6,000)

Fair Value retained earnings to be eliminated 175,000

w.2: Calculation of Goodwill to be recognized

Particulars $ $

Consideration paid for acquisition 291,000

Assets of Scrub:

Asset book value 420,000

Increase in land value 21,000

Decrease in inventories values (6,000)

Assets 435,000

Liabilities (169,000)

Net asset value of Scrub (266,000)

Goodwill to be recognized 25,000

b. Prepare the following consolidation entries required when Consideration is $262,000

1. Record the basic consolidation entry

Accounts Dr ($) Cr ($)

Common Stock 91,000

Retained Earnings (w.3) 175,000

Investment in Scrub Company 262,000

Capital reserve (w.4) 4,000

(To record the elimination of investment and stockholder equity.)

2. Record the excess value (differential reclassification entry)

Note that $4,000 is transferred to Capital Reserve in part 1 above.

The $4,000 is transferred to Capital Rserve because when the consideration is less than the net asset value which is calculated as the of Common Stock and Retained Earnings, the difference is Capital Reserve.

When Net Consideration is less than the net asset value (Stockholder Equity), then the difference is to be transferred to Capital reserve.

Workings:

w.3: Calculation of retained earning to be eliminated

Particulars $

Retained Earnings Balance 160,000

Increase in land value 21,000

Decrease in inventories values (6,000)

Fair Value retained earnings to be eliminated 175,000

w.4: Calculation of Goodwill to be recognized

Particulars $ $

Consideration paid for acquisition 262,000

Assets of Scrub:

Asset book value 420,000

Increase in land value 21,000

Decrease in inventories values (6,000)

Assets 435,000

Liabilities (169,000)

Net asset value of Scrub (266,000)

Capital reserve to be recognized  (4,000) 

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2 years ago