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sir, can explain me this question, its from kaplan:
On 1 January 20X4 Badger entered into a lease agreement to lease an item of machinery for 4 years with rentals of $210,000 payable annually in arrears. The asset has a useful life of 5 years and at the end of the lease term legal ownership will pass to Badger. The present value of the lease payments at the inception of the lease was $635,000 and the interest rate implicit in the lease is 12.2%. For the year ended 31 December 20X4 Badger accounted for this lease by recording the payment of $210,000 as an operating expense. This treatment was discovered during 20X5, after the financial statements for 20X4 had been finalised.
In the statement of changes in equity for the year ended 31 December 20X5 what adjustment will be necessary to retained earnings brought forward?
A $5,530 credit
B $132,530 credit
C $210,000 debit
D $Nil 82ans: A
Hi,
I can’t got through and answer the entire question, you need to attempt it first and then let me know where you are having difficulties. I’ll then happily explain to you where you are going wrong.
I’m always reluctant to just answer a full question and believe that a student’s learning is better having attempted the question itself.
Thanks
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