H B G 1 Question 1: Lease payment (5 marks) 2 QUESTION DATA: Anna Textile Co. leased equipment from Kristoff Industries Ltd. on November 1, 2020. Anna Textile Co. follows ASPE and Kristoff Industries 3 Ltd. follows IFRS. The following information relates to the lease agreement: 4. (1). The equipment has an estimated economic life of 10 years. (2). There are no abnormal risks associated with the collection of the lease payments from Anna Textile Co. Also, there are no additional unreimbursable 5 costs to be incurred in connection with the leased equipment. 6 (3). The yearly lease payment includes $1,500 of executory costs related to insurance on the equipment. 7 (4). The term of the lease is 8 years. (5). Anna Textile has the option to purchase the equipment for $35,000 upon the termination of the lease. This option is reasonably certain to be s exercised. 2 (6). The equipment's cost is $250,000 and the asset's fair value on November 1, 2020 is $280,000. 0 (7). The lease agreement requires equal annual rental payments beginning November 1, 2020. (8). The lease agreement states the implicit interest rate of 8%. Anna Textile Co.'s incremental borrowing rate is 7% and is unknown to Kristoff Industries. 1 2. 3 4 5 REQUIRED: Calculate the lease payment that Kristoff Industries Ltd. would require from Anna Textile Co. Complete the blue boxes below for the specific variables and state in the conclusion the lease payment. Two excel functions that can be used to help are the PMT function and solve using goal-seek. Round the lease 6 payment to the nearest whole dollar! 7 Variables required 8 Rate = wd 9 n = 0 FV = Type = PV = (insert 1 or 0 depending on beginning or end) 1 2 3 4