On January $1,2023,$ Brady Inc. enters into a $5-$year non$-$cancellable lease with Brees

Ltd$.$ for equipment that has an estimated useful life of $5$ years and a fair value of

$$2,000,000.$ Brady$$s incremental borrowing rate is $8\%$ and Brees$$ implicit rate is $6\%.$

Brady uses the straight$-$line depreciation method to depreciate assets. Brady will make

annual lease payments on January $1$ of each year $($with the first payment due at the

beginning of the lease$)$ based on the fair value of the equipment. The lease agreement

includes a guarantee that Brady will take over ownership of the equipment from Brees

for a final payment of $$100,000.$ In addition to the equipment, Brees convinced Brady to

also lease some small office equipment. For a $$300$ a month lease payment, for a term

of $1$ year, Brady gets the equipment it needs to run a small office with $3$ staff. Both

companies adhere to IFRS.

Instructions

a$)$ Calculate the lease payment Brees Ltd$.$ will charge Brady Inc. assuming that

there is no mark up on the fair value of the equipment. Round to the nearest

dollar.

b$)$ Calculate the present value of the minimum lease payments. Round to the

nearest dollar.

c$)$ Present the journal entries that Brady Inc. would record during the first year

of the equipment lease. Round to the nearest dollar.

d$)$ Prepare the journal entries that Brady Inc. would record in the first two

months of the office equipment lease. Round to the nearest dollar.

e$)$ CRITICAL THINKING: Are these two lease agreements accounted for

differently. If so$,$ why is there a difference?