On January 1, 2024, Bountee Ltd. leased a machine from Vector Equipment Ltd. The machine had cost

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On January 1, 2024, Bountee Ltd. leased a machine from Vector Equipment Ltd. The machine had cost Vector $420,000 to manufacture, and would normally have sold for about $600,000. The lease was for 10 years and requires equal monthly payments of $6,525, which reflect an annual interest rate of 8%. While the machine is expected to have a total useful life of 12 years, Bountee’s management plans to return it to Vector at the end of the 10-year lease. Bountee’s management has also determined that the present value of the minimum lease payments was $537,800 at the time the lease was entered into.


Required
Explain the impact that the lease will have in the first month on: 

a. Bountee’s statement of financial position 

b. Bountee’s statement of income

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Understanding Financial Accounting

ISBN: 9781119715474

3rd Canadian Edition

Authors: Christopher D. Burnley

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