Finding lease payments and journal entries from both companies' perspective for both ASPE and IFRS The following

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Question:

Finding lease payments and journal entries from both companies' perspective for both ASPE and IFRS

The following common facts pertain to a lease between Company A (lessee) and Company B (lessor):

- Fair value at inception $300,000

- Residual Value at end of useful life $30,000

- Residual Value at end of lease term $50,000

- Useful life 10 years

- Lease term is 7 years

- Company A incremental borrowing rate is 10%

- Company B implicit rate (known to Company A) is 8%

- Straight line depreciation used by both Company A and B

Required for each of the scenarios below:

- Determine the annual lease payment to be charged by Company B to Company A

- Prepare journal entries for first year and last year of lease for both Company A and Company B

- Show for both constraints: IFRS and ASPE

Scenario 1: Company A has an option to purchase asset at the end of the lease term for $13,000. Lease payment is at the beginning of the period.

Scenario 2: Company A will return the asset to the lessor at the end of the lease but has guaranteed the residual value of $30,000. Expected payment under the guarantee is $50,000. Payments are at the beginning of the year.

Scenario 3: Company A will return the asset to the lessor at the end of the lease but has not guaranteed the residual value of $50,000. Payments are at the beginning of the year.