Question
1 T E ov n 3 12 rks Creations Comomtion signs an agreement on May 1, 2020 to lease equipment to Paver Corporation. Both Creations
1 T E ov
n 3 12" rks Creations Comomtion signs an agreement on May 1, 2020 to lease equipment to Paver Corporation. Both Creations Corporation and Paver Corporation are private companies and both companies have elected to follow Accounting Standards for Private Enterprise (ASPE). The following information relates to the agreement: - lhe term of the lease is four years, with no renewal option. The equipment has an estimated economic life of six years. - lhe asset's fair value at May l, 2020 is $385,000. - lhe asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $25,000, which is guaranteed. - The agreement requires equal annual rental payments of S I to Creations, the lessor, beginning May l, 2020. _ - lessee's borrowing rate is 11%. The lessor's implicit rate of 9% and is known to the lessee. for a)
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