McCormick Corporation Ltd., a public company following IFRS, recorded a finance lease at $150,000 on May 1, 2011

McCormick Corporation Ltd., a public company following IFRS, recorded a finance lease at $150,000 on May 1, 2011. The interest rate is 10%. McCormick Corporation made the first lease payment of $25,561 on May 1, 2011.

The lease requires a total of eight annual payments. The equipment has a useful life of eight years with no residual value.

Prepare McCormick Corporation’s December 31, 2011 adjusting entries.

Interest Expense........................  8,296

    Interest Payable

           [($150,000 – $25,561) X 10% X 8/12]       8,296

Depreciation Expense....................  12,500

    Accumulated Depreciation

           ($150,000 X 1/8 X 8/12)......            12,500