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On July 1 s t , 2 0 1 , the Youngsun Kim Corporation leased equipment to the Irish Lontoc Corporation. Both the Youngsun Kim

On July 1st,201, the Youngsun Kim Corporation leased equipment to the Irish Lontoc
Corporation. Both the Youngsun Kim and Irish Lontoc Corporation uses ASPE. The following
information pertains to this lease transaction.
The term of the lease is for six years, with no renewal option. The equipment reverts back
to the lessor at the termination of the lease, at which time it is expected to have a residual
value (not guaranteed) of $36,000.
The Corporation amortizes all its equipment on a straight line basis.
The equipment has an economic life of seven years.
Collectibility of the lease payments is reasonably predictable and there are no important
uncertainties about any unreimbursable costs that have not yet been incurred by the lessor.
Equipment rental payments are due on June 30th, of each year, except for the first down
payment which is due on July 1st,20x1.
The Corporation sets the annual rental payment to ensure a 9.0% rate of return. Irish
Lontoc Corporation's incremental borrowing rate is 10.0% and the lessor's implicit rate is
unknown to the lessee.
The equipment's fair market value as at July 1st,201 is $864,000 and its cost to the
Youngsun Kim is $650,000.
Both corporations use reversing entries.
The year end for Irish Lontoc Corporation is December 31st.
The year end for Youngsun Kim Corporation is June 30th
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