On January 1, 2017, Bonduris Company leases warehouse space in Oakland, CA. The
ID: 2523318 • Letter: O
Question
On January 1, 2017, Bonduris Company leases warehouse space in Oakland, CA. The lease is for six years with payments to be made at the beginning of each year. The lease calls for Bonduris to pay $15,000 on January 1, 2017. The lease calls for subsequent rent payments to increase 10% per year. For example, the January 1, 2018 payment will be $16,500, and the January 1, 2019 payment will be $18,150. Bonduris has adopted early ASC 842 and has appropriately classified the lease as an operating lease. Bonduris has a calendar reporting year and an incremental borrowing rate of 7%. Bonduris uses straight-line amortization for its long-lived assets. Ignore current and non currrent 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 Bonduris make at January 1, 2017, to record the effects of the lease?
2. Prepare Bonduris’s amortization table for the leased warehouse.
3. What is the balance of the lease liability on January 1, 2018, after Bonduris makes the rent payment?
4. What is the balance of the right-of-use asset on January 1, 2018, after Bonduris makes the rent payment?
TABLE 1 Present Value of $1 Periods 2% 3% 5% 6% 7% 8% 9% 10% 11% 12% 15% 16% 17% 1 0.98039 0.97087 0.96154 0.95238 0.94340 0.93458 0.92593 0.91743 0.90909 0.90090 0.89286 0.86957 0.86207 0.85470 2 0.96117 0.94260 0.92456 0.90703 0.89000 0.87344 0.85734 0.84168 0.82645 0.81162 0.79719 0.75614 0.74316 0.73051 3 0.94232 0.91514 0.88900 0.86384 0.83962 0.81630 0.79383 0.77218 0.75132 0.73119 0.71178 0.65752 0.64066 0.62437 4 0.92385 0.88849 0.85480 0.82270 0.79209 0.76290 0.73503 0.70843 0.68301 0.65873 0.63552 057175 0.55229 0.53365 5 0.90573 0.86261 0.82193 0.78353 0.74726 0.71299 0.68058 0.64993 0.62092 0.59345 0.56743 049718 0.47611 045611 6 0.88797 0.83748 0.79031 0.74622 0.70496 0.66634 0.63017 0.59627 0.56447 0.534640.50663 043233 0.41044 0.38984 7 0.87056 0.81309 0.75992 0.71068 0.66506 0.62275 0.58349 0.54703 0.51316 0.48166 0.45235 0.37594 0.35383 0.33320 8 0.85349 0.78941 0.73069 0.67684 0.62741 0.58201 0.54027 0.50187 0.46651 0.43393 0.40388 0.32690 0.30503 0.28478 9 0.83676 0.76642 0.70259 0.64461 0.59190 0.54393 0.50025 046043 0.42410 0.39092 0.36061 0.28426 0.26295 0.24340 10 0.82035 0.74409 0.67556 0.61391 0.55839 0.50835 0.46319 042241 0.38554 0.35218 0.32197 0.24718 0.22668 0.20804 11 0.80426 0.72242 0.64958 0.58468 0.52679 0.47509 0.42888 0.38753 0.35049 0.31728 0.28748 0.21494 0.19542 0.17781 12 0.78849 0.70138 0.62460 0.55684 0.49697 0.44401 0.39711 0.35553 0.31863 0.28584 0.25668 0.18691 0.16846 0.15197 13 0.77303 0.680950.60057 0.53032 0.46884 0.41496 0.36770 0.32618 0.28966 0.25751 0.22917 0.16253 0.14523 0.12989 14 0.75788 0.66112 0.57748 0.50507 0.44230 0.38782 0.34046 0.29925 0.26333 0.23199 0.20462 0.14133 0.12520 0.11102 15 0.74301 0.64186 0.55526 0.48102 0.41727 0.36245 0.31524 0.27454 0.23939 0.20900 0.18270 0.12289 0.10793 0.09489 16 0.72845 0.623170.53391 0.45811 0.39365 0.33873 0.29189 0.25187 0.21763 0.18829 0.16312 0.10686 0.09304 0.08110 17 0.71416 0.60502 0.51337 0.43630 0.37136 0.31657 0.27027 0.23107 0.19784 0.16963 0.14564 0.09293 0.08021 0.06932 18 0.70016 0.58739 049363 0.41552 0.35034 0.29586 0.25025 0.21199 0.17986 0.15282 0.13004 0.08081 0.06914 0.05925 19 0.68643 0.57029 047464 0.39573 0.33051 0.27651 0.23171 0.19449 0.16351 0.13768 0.11611 0.07027 0.05961 0.05064 20 0.67297 0.55368 045639 0.37689 0.31180 0.25842 0.21455 0.17843 0.14864 0.12403 0.10367 0.06110 0.05139 0.04328 25 0.60953 0.47761 0.37512 0.29530 0.23300 0.18425 0.14602 0.11597 0.09230 0.07361 0.05882 0.03038 002447 0.01974 30 0.55207 0.41199 0.30832 0.23138 0.17411 0.13137 0.09938 0.07537 0.05731 0.04368 0.03338 0.01510 0.01165 0.00900 35 0.50003 0.35538 0.25342 0.18129 0.13011 0.09366 0.06763 0.04899 0.03558 0.02592 0.01894 0.00751 0.00555 0.00411 40 0.45289 0.30656 0.20829 0.14205 0.09722 0.06678 0.04603 0.03184 0.02209 0.01538 0.01075 0.00373 0.00264 0.00187Explanation / Answer
1.
(Being Assets and lease Liability Recognised and the 1st Installment Paid)
2.
3.
70,757 - Refer above table
4.
82,968 - Refer Above Table
Account Description Debit Credit Right to Use Assets 96,549.53 To Lease Obligation 81,549.53 To Cash 15,000.00(Being Assets and lease Liability Recognised and the 1st Installment Paid)
2.
Years 0 1 2 3 4 5 6 Right to Use 96,549.53 13,580.62 14,336.03 15,259.81 16,375.32 17,708.66 19,289.09 Lease Obligation 81,549.53 70,757.99 57,561.05 41,625.33 22,577.60 - - Lease Expenses 19,289.09 19,289.09 19,289.09 19,289.09 19,289.09 19,289.09 Lease Liability Accreation 5,708.47 4,953.06 4,029.27 2,913.77 1,580.43 - Payments 15000 16,500.00 18,150.00 19,965.00 21,961.50 24,158.033.
70,757 - Refer above table
4.
82,968 - Refer Above Table