Blossom Corporation is a machinery dealer whose shares trades on the TSX, and so
ID: 2546496 • Letter: B
Question
Blossom Corporation is a machinery dealer whose shares trades on the TSX, and so uses IFRS 16. Blossom leased a machine to Ernst Ltd. on January 1, 2017. The lease is for a six-year period and requires equal annual payments of $24,730 at the beginning of each year. The first payment is received on January 1, 2017. Blossom had purchased the machine for its inventory during 2016 for $99,100. Collectibility of lease payments is reasonably predictable, and no important uncertainties exist about costs that have not yet been incurred by Blossom. Blossom set the annual rental amount to ensure an 9% rate of return. The machine has an economic life of six years, with no residual value, and reverts to Blossom at the termination of the lease.
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Date
Account Titles and Explanation
Debit
Credit
1/1/17
(To record inception of lease & cost of goods sold)
SHOW LIST OF ACCOUNTS
Blossom Corporation is a machinery dealer whose shares trades on the TSX, and so uses IFRS 16. Blossom leased a machine to Ernst Ltd. on January 1, 2017. The lease is for a six-year period and requires equal annual payments of $24,730 at the beginning of each year. The first payment is received on January 1, 2017. Blossom had purchased the machine for its inventory during 2016 for $99,100. Collectibility of lease payments is reasonably predictable, and no important uncertainties exist about costs that have not yet been incurred by Blossom. Blossom set the annual rental amount to ensure an 9% rate of return. The machine has an economic life of six years, with no residual value, and reverts to Blossom at the termination of the lease.
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Explanation / Answer
Journal Entry in the books of Blossom Corporation Date Account & Explanation Debit Credit 01/01/2017 Lease Receivable $146,220.00 Cost of Goods Sold $99,100.00 Sales $119,160.00 Inventory $99,100.00 Uneaned Interest Revenue $27,060.00 To Record inception of Lease & Cost of goods Sold 01/01/2017 Cash $24,370.00 Lease Receivable $24,370.00 ( Record First Lease rent Payment received) 31/12/2017 Unearned Interest Revenue $8,531.00 Interest Revenue $8,531.00 ($119160-$24370)*9% To record Interest Revenue Computation of Fair Value of Lease Annual Rental $24,370 Cumm PVF @9% for 6 Year 4.8896 Fair Value Value of Lease Receivable (Round Off) $119,160.00 1 Gross Investment in Lease ( $24370*6) $146,220 2 Uneraned Interest Income ($146220-$119160) $27,060 3 Net Investment in the Lease $119,160