Muscat Leasing purchased a machine for $500,000 and leased it to Gulf, Inc. on January 1, 2013.
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Question:
- Muscat Leasing purchased a machine for $500,000 and leased it to Gulf, Inc. on January 1, 2013.
Related Information | |
Quarterly rental payments | $32,629 at the beginning of each period |
Lease term | 5 years (20 quarters) |
Economic life of the machine | 5 years |
Implicit interest rate & lessee's incremental borrowing rate | 12% |
Fair value of the asset | $500,000 |
Required:
- Explain how should this lease be classified, and provide a reason to support your answer? [ 2 marks]
- Prepare appropriate entries for both Muscat and Gulf Inc. from the inception of the lease date for all the payments till end of 2013. Depreciation is recorded at the end of each fiscal year using straight line method (December 31). [ 8 marks]
Related Book For
Financial Accounting
ISBN: 978-0133427530
10th edition
Authors: Walter Harrison, Charles Horngren, William Thomas
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