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On January 1, 2023, Cullumber Inc. enters into a 5-year non-cancellable lease with Wilson Ltd. for equipment that has an estimated useful life of 5
On January 1, 2023, Cullumber Inc. enters into a 5-year non-cancellable lease with Wilson Ltd. for equipment that has an estimated useful life of 5 years and a fair value of $2,034,000. Cullumber has an incremental borrowing rate of 8% and Wilson's implicit rate is 6%. Cullumber uses the straight-line depreciation method to depreciate assets. Cullumber will make annual lease payments on January 1 of each year (with the first payment due at the beginning of the lease) based on the fair value of the equipment. The lease agreement includes a guarantee that Cullumber will take over ownership of the equipment from Wilson for a final payment of $102,000. Both companies adhere to IFRS. (a) Calculate the lease payment Wilson Ltd. will charge Cullumber Inc assuming that there is no mark up on the fair value of the equipment. (Round present value factor calculations to 4 decimal places, e.g. 12.5124.) Click here to view the factor table
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