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Kawasaki Ltd., a private corporation adhering to ASPE, enters into a non-cancellable lease agreement on July 1, 2022, to lease equipment from Motoyama Ltd.
Kawasaki Ltd., a private corporation adhering to ASPE, enters into a non-cancellable lease agreement on July 1, 2022, to lease equipment from Motoyama Ltd. The following data are relevant to the lease agreement: 1. The term of the lease is 5 years, with no renewal option. Payments of $127,547 are due on July 1 of each year, with the first payment due July 1, 2022. 2. The fair value of the equipment on July 1, 2022 is $550,000. The equipment has an economic life of 8 years with no residual value. 3. Kawasaki depreciates similar equipment it owns on the double declining-balance basis. 4. Kawasaki's incremental borrowing rate is 10%. The lessee is aware that the lessor used an implicit rate of 8% in calculating the lease payments. 5. Appropriate present value factor for 5 periods at 8% is 4.31213 ; at 10%, 4.16986. Instructions a) What type of lease this is for Kawasaki? What is your rationale? b) Prepare the journal entries on Kawasaki's books that relate to the lease agreement for the following dates. Round all amounts to the nearest dollar. Include a partial amortization schedule. i. July 1, 2022 ii. December 31, 2022 (fiscal year end) iii. July 1, 2023
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