Finding lease payments and journal entries from both companies' perspective for both ASPE and IFRS The following
Question:
Finding lease payments and journal entries from both companies' perspective for both ASPE and IFRS
The following common facts pertain to a lease between Company A (lessee) and Company B (lessor):
- Fair value at inception $300,000
- Residual Value at end of useful life $30,000
- Residual Value at end of lease term $50,000
- Useful life 10 years
- Lease term is 7 years
- Company A incremental borrowing rate is 10%
- Company B implicit rate (known to Company A) is 8%
- Straight line depreciation used by both Company A and B
Required for each of the scenarios below:
- Determine the annual lease payment to be charged by Company B to Company A
- Prepare journal entries for first year and last year of lease for both Company A and Company B
- Show for both constraints: IFRS and ASPE
Scenario 1: Company A has an option to purchase asset at the end of the lease term for $13,000. Lease payment is at the beginning of the period.
Scenario 2: Company A will return the asset to the lessor at the end of the lease but has guaranteed the residual value of $30,000. Expected payment under the guarantee is $50,000. Payments are at the beginning of the year.
Scenario 3: Company A will return the asset to the lessor at the end of the lease but has not guaranteed the residual value of $50,000. Payments are at the beginning of the year.
Intermediate Accounting principles and analysis
ISBN: 978-0471737933
2nd Edition
Authors: Terry d. Warfield, jerry j. weygandt, Donald e. kieso