Refer to the data and other information provided in E20-1, but now assume that Maleki's fiscal year end is May 31. Prepare the journal entries on Maleki Corp.'s books to reflect the signing of the lease agreement and to record payments and expenses related to this lease for the calendar years 2017 and 2018. Maleki does not prepare reversing entries.
In E20-1
On January 1, 2017, Maleki Corp., which uses IFRS 16, signs a 10-year, non-cancellable lease agreement to lease a specialty lathe from Liu Inc. The following information concerns the lease agreement.
1. The agreement requires equal rental payments of $73,580 beginning on January 1, 2017.
2. The lathe's fair value on January 1, 2017 is $450,000.
3. The lathe has an estimated economic life of 12 years, with an unguaranteed residual value of $12,000. Maleki Corp. depreciates similar equipment using the straight-line method.
4. The lease is non-renewable. At the termination of the lease, the lathe reverts to the lessor.
5. Maleki's incremental borrowing rate is 12% per year. The lessor's implicit rate is not known by Maleki Corp.
6. The yearly rental payment includes $2,470.29 of executory costs related to insurance on the loom.