. On December 31, 2017, Eastern Inc. leased machinery with a fair value of $420,000 from Northern Rentals. The agreement is a six-year non-cancellable lease requiring annual payments of $80,000 beginning December 31, 2017. The lease is appropriately accounted for by Eastern as a finance lease. Easterns incremental borrowing rate is 11%; however, they also know that the interest rate implicit in the lease payments is 10%. Eastern adheres to IFRS.

The present value of an annuity due for 6 years at 10% is 4.7908.

The present value of an annuity due for 6 years at 11% is 4.6959.

On its December 31, 2017 statement of financial position, Eastern should report a lease liability of (rounded to the nearest dollar)

a) $303,264.

b) $340,000.

c) $375,672.

d) $383,264.

19. Frank Corporation has an asset with a fair market value of $200,000 that it wants to lease. Franks wants to recover its net investment in the leased asset and earn a 10% return. The asset will revert back to Franks at the end of a 6-year lease term. If Franks charges rent annually at the beginning of the year, what should amount should the annual rent be (rounded to whole dollars)?

a) $18,817

b) $33,333

c) $41,747

d) $53,333

20. Rabbit Inc. has an asset with a fair market value of $450,000 that it wants to lease. Rabbits wants to recover its net investment in the leased asset and earn an 8%. The asset will revert back to Rabbits at the end of a 5-year lease term and it is expected that the residual value of the asset will be $20,000 at the end of the lease. If Rabbit wants to charge rent semi-annually starting at the beginning of the lease, what amount should the lease payments be (rounded to whole dollars)?

a) $60,817

b) $62,096

c) $101,200

d) $104,367