Question
ACCT Corp. is a manufacturer of truck trailers. On 1 January 2020, ACCT Corp. leased a trailer to a customer under a six-year lease agreement.
ACCT Corp. is a manufacturer of truck trailers. On 1 January 2020, ACCT Corp. leased a trailer to a customer under a six-year lease agreement. The following information about the lease and the trailers is provided:
1. Equal annual payments of $10 816 are due on 31 December each year. The interest rate implicit in the lease is 8%.
2. The lease can be cancelled by the customer upon payment of a penalty of $40,000.
3. There is a purchase option that the customer will be able to exercise at the end of the sixth year, for $2 000. The estimated fair value of the trailer at the end of the sixth year is $10 000.
4. The fair value of the trailer is $51,260. The cost of a trailer to ACCT Corp. is $45,000. The trailer has an expected useful life of nine years. REQUIRED:
(1) What type of lease is this for the lessor? Provide explanation and justification for your classification considering AASB 16. (9 marks)
(2) Prepare the journal entries for the lessor from 1 January 2020 to 31 December 2020 (the reporting period end of ACCT Corp.) to record the lease arrangement.
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