Ivanhoe Corporation is a machinery dealer whose shares trades on the TSX, and so
ID: 2546290 • Letter: I
Question
Ivanhoe Corporation is a machinery dealer whose shares trades on the TSX, and so uses IFRS 16. Ivanhoe leased a machine to Ernst Ltd. on January 1, 2017. The lease is for a six-year period and requires equal annual payments of $24,959 at the beginning of each year. The first payment is received on January 1, 2017. Ivanhoe had purchased the machine for its inventory during 2016 for $100,900. Collectibility of lease payments is reasonably predictable, and no important uncertainties exist about costs that have not yet been incurred by Ivanhoe. Ivanhoe set the annual rental amount to ensure an 12% rate of return. The machine has an economic life of six years, with no residual value, and reverts to Ivanhoe at the termination of the lease.
A)Using time value of money tables, a financial calculator, or Excel functions, calculate the amount of each of the following:
gross investment:
unearned intrest income:
net investment in lease:
B)Prepare all necessary journal entries for Ivanhoe for 2017.
(n =6
rate of return =12%
1.97382)
Explanation / Answer
Lease amortization schedule Year Equal annual lease payments PVIF@12% Present worth Interest 0 24959 1 24959 0 1 24959 0.892857 22284.82 2674.178571 2 24959 0.797194 19897.16 5061.83801 3 24959 0.71178 17765.32 7193.676795 4 24959 0.635518 15861.9 9097.104281 5 24959 0.567427 14162.41 10796.59311 149754 114930.6 34823.39 Gross Investment in Lease 149754 Unearned Interest Income 34823.39 Net Investment in Lease 114930.6 Journal entries for Ivanhoe for 2017 Amount in $ Date General Journal Debit Credit 2017 Jan-01 Cash Jan-01 Investment in Lease 114930.6 Leased asset 100900 Profit on Leased asset 14030.61 To record the inception of lease Jan-01 Cash 24959 Investment in Lease 24959 To record the receipt of 1st Installment towards lease Dec-01 Investment in Lease 2674.18 Interest Income 2674.18 To record the Interest portion of lease installment.
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