Question
On December 31, 20x0, the Hastings Corporation leased equipment. The fair value of the equipment is $350,000 and has an estimated useful and economic life
On December 31, 20x0, the Hastings Corporation leased equipment. The fair value of the equipment is $350,000 and has an estimated useful and economic life of 10 years. The lease term is 7 years and the guaranteed residual value at the end of the lease term is $50,000. The interest rate implicit in the lease is 6% and Hastingss incremental borrowing rate is 5%. The interest rate implicit in the lease is known to Hastings. The first lease payment is due on December 31, 20x0. The residual value of the asset at the end of its useful life is $15,000. (a) Calculate the lease payment. (b) Assuming that Hastings is subject to IFRS, prepare the journal entries with regards to this lease for the years ending December 31, 20x0, 20x1 and 20x2. Hastings estimates that they will return the asset at a fair value of $20,000. (c) Repeat parts (a) and (b) on the assumption that Hastings has the option to purchase the equipment at the end of the lease term for $10,000. (d) Repeat part (b) on the assumption that Hastings is subject to ASPE and will be returning the asset to the lessor at the end of the lease term. For this part, assume that the residual value is not guaranteed.
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