On January 1, Year 8, Big Boom Inc., a firearms ammunition reloading business, entered into an eight-year non-cancellable lease with Shrapnel Inc. for equipment having an estimated useful life of 12 years with no residual value. You need to calculate the fair value because the Shrapnel accountant confided to you that he doesnt know how to calculate it because he really doesnt have a CPA, but his employer thinks he does.

(take a shot at your ethical responsibilities as a CPA in this situation, if any, and if you get it right there is a 2 mark bonus)

The lease rate is 11%. Big Boom will use the straight-line method to depreciate the asset. Both companies use IFRS 16. The lease contains the following provisions:

1. The annual lease payment is $838,000 (including a $38,000 payment for insurance you can debit insurance expense for this), payable on January 1 each year. First payment is Jan. 1, Year 8.

2. There is a $300,000 bargain purchase option that will be exercised by Big Boom at the end of the lease.

Instructions

1. Calculate the present value of the minimum lease payments rounded to the nearest dollar. Your calculations for this may be handwritten. Type the present value in the box below.
2. Prepare a lease amortization schedule up to and including January 1, Year 10 and round values to the nearest dollar. Type this in the table.

. Lease amortization Schedule

	payments	Interest 12%	Lease liability	BV