Question
Construction Leasing Company SAOG (OCLC), a subsidiary of Muscat Grant Corporation signed a lease agreement with Muscat Mist Infrastructure Company on January 2020. the leasing
Construction Leasing Company SAOG (OCLC), a subsidiary of Muscat Grant Corporation signed a lease agreement with Muscat Mist Infrastructure Company on January 2020. the leasing company will provide drilling equipment according to the following conditions:
- The term of the lease is up to December 2023 (4 years). The lease agreement is non-cancelable and requiring an equal rent payment of 200,000 OMR at the beginning of each year (Annuity due basis).
- Muscat Mist has approval for renewal before maturity for two times. The equipment has a fair value at the time of lease agreement was around 980,000 OMR and economic life of 2 years and no residual value.
- Muscat Mist pays all the executory costs directly to the third party except for the property tax of OMR 1,500 per year which is included as a part of its annual payment to OOLC.
- Muscat Mist incremental borrowing rate is 12% per year.
- Muscat Mist depreciates similar equipment that it owns at a straight ling method depreciation. The targted rate of return expected by the lessor is 10%. the fact is known to the lessee.
REQUIRED:
1. Identify the type of lease both the companies have entered and explain why?
2. Journalize the intial jpurnal entry for the Muscat Mist Infrastructure.
3. Journalize first lease payement -schedule- for Muscat Mist.
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