On March 1, 2021, Shrek Inc. enters into a seven-year non-cancellable lease with Fiona Ltd. For...

 

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On March 1, 2021, Shrek Inc. enters into a seven-year non-cancellable lease with Fiona Ltd. For machinery having an estimated useful life of nine years and a fair value of $ 4,300,000. Shrek's incremental borrowing rate is 8% and Fiona's implicit rate is 6%. Shrek uses the straight-line depreciation method to depreciate assets. The machinery has an economic life of 10 years and has a residual value of $100,000. Shrek will make annual lease payments on March 1 of each year. The lease is non-renewable. At the termination of the lease, the machinery will revert back to the lessor. adhere to IFRS 16. Both companies Required: a) Calculate the lease payment that the lessor must charge the lessee to ensure that their investment can be recovered by the lease payments. Check figure: present value of the investment to be recovered in lease payments is $4,233,494 b) Present the journal entries that would be required by Shrek Inc. up December 31, 2022. Assume that the lessee has a year end of Dec 31. (include any adjusting entries!) Before you begin – you will need to ensure that you know who the lessee is and who the lessor is to ensure that you properly respond to the entries required in part b!!! On March 1, 2021, Shrek Inc. enters into a seven-year non-cancellable lease with Fiona Ltd. For machinery having an estimated useful life of nine years and a fair value of $ 4,300,000. Shrek's incremental borrowing rate is 8% and Fiona's implicit rate is 6%. Shrek uses the straight-line depreciation method to depreciate assets. The machinery has an economic life of 10 years and has a residual value of $100,000. Shrek will make annual lease payments on March 1 of each year. The lease is non-renewable. At the termination of the lease, the machinery will revert back to the lessor. adhere to IFRS 16. Both companies Required: a) Calculate the lease payment that the lessor must charge the lessee to ensure that their investment can be recovered by the lease payments. Check figure: present value of the investment to be recovered in lease payments is $4,233,494 b) Present the journal entries that would be required by Shrek Inc. up December 31, 2022. Assume that the lessee has a year end of Dec 31. (include any adjusting entries!) Before you begin – you will need to ensure that you know who the lessee is and who the lessor is to ensure that you properly respond to the entries required in part b!!!

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Present value of lease payments fair value of machinery No markup So Let Lea... View the full answer