ACE entered into a noncancciablc !case on January 2, 2019 with the followin2. terms:

A. ACE leased specialized machinery manufactured by th.! lessor₅Bell Corp., which enables ACE to manufacture their electric cars in a much more efficient manner,

2. . The lease term is for 3 years with an annual lease payment of $10.000. Payment is due on December 31 of each year, with the first payment due on Dec-ember 31, 2019. Al the end of the lease term, ownership reverts to the lessor, There is no option for ACE to buy the equipment.

C, The lessee will pay all executor posts of $1.,500/year which in included in 2019 selling and administration expenses.

D. The estimated useful life of the ]ease is 8 years

F. The fair market value of the equipment is $60,000 on January 1, 2019.

F. The implicit rate of Bell Corp. is 6 percent, and the lessee, ACE, knows this,

7. . ACE's incremental borrowing rate is 7 percent.

2_ For years 2019 and 2018 ACE treated all lease transactions as operating (off: balance sheet transactions) resulting in identical financial statement reporting under US CiAAP and 1FRS..

3. ACE sold property. plant and equipment during the year for its book value of $30,000. As such there was no gain (loss) on the sale. Absent the lease transaction in 1 above, no property, plant and equipment purchases we re made during 2019.
4. Two million shares of common stock were issued at the beginning of 2019.
5. Securities available for sale were purchased on December 31, 2019.
6. Cash dividends were paid during 2019.

ACE `s bonds payable have several covenants that involve ne income and cash from operating activities. 1 ^-he controller is especially concerned that 'FRS treat:mei it leases does not violate those covenants.