A lease agreement between Hebert Corporation and Russell Corporation is described in E20-3.
In E20-3
The following facts are for a non-cancellable lease agreement between Hebert Corporation and Russell Corporation, a lessee:

The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties 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
Provide the following for Hebert Corporation, the lessor.
(a) Discuss the nature of the lease.
(b) Calculate the amount of gross investment at the inception of the lease.
(c) Calculate the amount of net investment at the inception of the lease.
(d) Prepare a lease amortization schedule using a computer spreadsheet for Hebert Corporation for the five-year lease term.
(e) Prepare the journal entries to reflect the signing of the lease and to record the receipts and income related to this lease for the years 2017, 2018, and 2019. The lessor's accounting period ends on December 31, and Hebert Corporation does not use reversing entries.

Transcribed Image Text:

nception date Annual lease payment due at the beginning of each year, starting July 1, 2017 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, 2017 Lessor's implicit rate Lessee's incremental borrowing rate July 1, 2017 $20,066.26 $4,500.00 5 years 10 years $60,000.00 $88,000.00 9% 9%