Cuomo Mining Corporation, a public company whose stock trades on the Toronto Stock Exchange, uses IFRS. The vice-president of finance has asked you, the assistant controller, to prepare the company’s current accounting of a lease. The lease was signed by Cuomo on April 1, 2023, with Bertrand Ltd. for a piece of excavation equipment. The following information relates to the agreement.

1. The term of the non-cancellable lease is three years, with a renewal option of one additional year at the annual rate of 125% of the initial payment. The equipment has an estimated economic life of 10 years.

2. The asset’s fair value at April 1, 2023, is approximately $1 million.

3. The asset will revert to Bertrand at the end of the initial term of the lease, or at the end of the renewal period if Cuomo exercises that option. The excavation equipment is expected to have a fair value of $600,000 on March 31, 2026, and $500,000 on March 31, 2027, which is not guaranteed.

4. Cuomo assumes direct responsibility for all executory costs for the excavation equipment.

5. The initial term of the lease agreement requires equal annual rental payments of $135,000 to Bertrand, beginning on April 1, 2023.

6. The lessee’s incremental borrowing rate is 9%. Bertrand’s implicit rate is 8% and is known to Cuomo.

7. Cuomo has a calendar year end.

Cuomo’s operations manager says that there is a 70% chance that the renewal period will be exercised.

Instructions

Answer the following, rounding all numbers to the nearest dollar.

a. Determine the amount of the liability for lease payments at the signing of the lease. Show calculations using any of the following methods: (1) factor tables, (2) a financial calculator, or (3) Excel functions.

b. Use a spreadsheet to prepare an amortization schedule for Cuomo for the lease term including the expected lease renewal. Use the rounded answer in part (a).

c. Prepare all of Cuomo’s journal entries for fiscal years 2023 and 2024 to record the lease agreement and the lease payments.

d. Provide Cuomo’s SFP disclosure for all of the amounts that would appear concerning the lease at December 31, 2024.

e. Provide Cuomo’s statement of income disclosure for the fiscal year ended December 31, 2024.