(b) The information below relates to a leasing arrangement between Simmonds Leasing Company and Telsan Company, a lessee.

Inception date January 1, 2020

Lease term 6 years

Annual lease payment due at the beginning of

each year, beginning with January 1, 2020 $150,000

Fair value of asset at January 1, 2020 $760,000

Economic life of leased equipment 7 years

Residual value of equipment at end of lease term,

guaranteed by the lessee $65,500

Lessors implicit rate 10%

Lessees incremental borrowing rate 12%

January 1, 2020

The asset will revert to the lessor at the end of the lease term. The lessee has guaranteed the lessor a residual value of $65,500. The lessee uses the straight-line depreciation method for all equipment.

Instructions

iii) Record the first years depreciation on Telsan Companys books. (3 marks)

iv)Record interest expense and lease liability for Telsan Company for the year ending December 31, 2020. (2 marks)