On January 1, 2023, Fields Inc. enters into a 5-year non-cancellable lease with Wilson Ltd. for equipment
Question:
On January 1, 2023, Fields Inc. enters into a 5-year non-cancellable lease with Wilson Ltd. for equipment that has an estimated useful life of 5 years and a fair value of $2,000,000. Fields has an incremental borrowing rate of 8% and Wilson's implicit rate is 6%. Fields uses the straight-line depreciation method to depreciate assets. Fields will make annual lease payments on January 1 of each year (with the first payment due at the beginning of the lease) based on the fair value of the equipment. The lease agreement includes a guarantee that Fields will take over ownership of the equipment from Wilson for a final payment of $100,000. Both companies adhere to IFRS. Instructions a) Calculate the lease payment Wilson Ltd. will charge Fields Inc assuming that there is no mark up on the fair value of the equipment. Round to the nearest dollar. b) Calculate the present value of the minimum lease payments. Round to the nearest dollar. c) Present the journal entries that Fields Inc. would record during the first year of the equipment lease. Round to the nearest dollar. d) Prepare the journal entries that Wilson Ltd. would record in the first year assuming that this is a finance lease. Round to the nearest dollar.
Intermediate Accounting IFRS
ISBN: 978-1119372936
3rd edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield