On December 31, 20x0 an entity sells one of its asset to a leasing company and immediately leases it back.

Fair value of asset

Asset's original cost

Accumulated depreciation

Lease term

Economic (and useful) life of asset

Residual value

Interest rate implicit in the lease (known to the lessee) Lessee's incremental borrowing rate

$1,200,000 $3,000,000 2,200,000 15 years 15 years 0 5% 5%

At the end of the lease term, the asset's ownership reverts back to the lessee. The first lease payment of $110,105 is due on December 31, 20x0.

Required -

For each of the following, prepare the journal entries relative to this lease transaction at December 31, 20x0 and December 31, 20x1.

(a) The lessee is subject to IFRS

(b) The lessee is subject to ASPE.