question E20-4

does not prepare reversing enties. Round to tile mediest cen. E20.3 (LO 4, 5, 6, 11) (Type of Lease, Lessee Entries with Purchase Option) The following facts are for a non-cancellable lease agreement between Hebert Corporation and Russell Corporation, a lessee: July 1, 2020 $20,066.26 Inception date Annual lease payment due at the beginning of each year, starting July 1, 2020 Bargain purchase option price at end of lease term reasonably certain to be exercised by Russell Lease term Economic life of leased equipment Lessor's cost Fair value of asset at July 1, 2020 Lessor's implicit rate Lessee's incremental borrowing rate $4,500.00 5 years 10 years $60,000.00 $88,000.00 9% 9% The collectibility of the lease payments is reasonably predictable, and there are no important uncertain ties about costs that have not yet been incurred by the lessor. The lessee assumes responsibility for all executory costs. Both Russell and Hebert use IFRS 16. Instructions Answer the following, rounding all numbers to the nearest cent. a. Calculate the amount of the right-of-use asset and lease liability. Show calculations using any of the following methods: (1) factor tables, (2) a financial calculator, or (3) Excel functions. b. Discuss the nature of this lease to Russell Corporation, the lessee. e. Prepare the journal entries on the lessee's books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2020 and 2021. Russell's annual accounting period ends on December 31, and Russell does not use reversing entries. E20.4 (LO 6, 9, 10, 11) (Lessor Entries with Purchase Option) A lease agreement between Hebert Corporation and Russell Corporation is described in E20.3. Instructions Provide the following for Hebert Corporation, the lessor, rounding all numbers to the nearest cent. a. Discuss the nature of the lease. b. Calculate the amount of gross investment at the inception of the lease. 11 e. Prepare the journal entries to reflect the signing of the lease and to record the receipts and in- come related to this lease for the years 2020, 2021, and 2022. The lessor's accounting period ends on December 31, and Hebert Corporation does not use reversing entries