Refer to the data and other information provided in E20-21, but now assume that Fine's fiscal year end is May 31. Prepare the journal entries on Fine Corp.'s books to reflect the lease signing and to record payments and expenses related to this lease for the calendar years 2017 and 2018. Fine does not prepare reversing entries.
In E20-21
On January 1, 2017, Fine Corp., which follows IAS 17, signs a 10-year, non-cancellable lease agreement to lease a specialty loom from Sheffield Corporation. The following information concerns the lease agreement.
1. The agreement requires equal rental payments of $73,580 beginning on January 1, 2017.
2. The loom's fair value on January 1, 2017 is $450,000.
3. The loom has an estimated economic life of 12 years, with an unguaranteed residual value of $12,000. Fine Corp. depreciates similar equipment using the straight-line method.
4. The lease is non-renewable. At the termination of the lease, the loom reverts to the lessor.
5. Fine's incremental borrowing rate is 12% per year. The lessor's implicit rate is not known by Fine Corp.
6. The yearly rental payment includes $2,470.29 of executory costs related to insurance on the loom.