Ontarian Corp., a private corporation that adheres to ASPE, is a manufacturer of truck trailers. On January 1, 2020, Ontarian leases ten trailers to B. C. Flooding Inc. under a seven-year non-cancellable lease agreement. The following information about the lease and the trailers is provided:

1. Equal annual payments (due on December 31 each year) will be payable, to provide Ontarian with an 8% return on their investment.

2. Title to the trailers will pass to B. C. Flooding at the end of the lease.

3. On January 1, 2020, the fair value of each trailer is $ 50,000. The cost of each trailer to Ontarian Corp. is $ 45,000. Each trailer has an expected useful life of nine years.

4. Collectibility of the lease payments is reasonably assured, and any unreimbursable costs under the lease that are likely to be incurred by Ontarian can be reasonably estimated.

Instructions

a) Calculate the annual lease payment. Round to the nearest dollar and show your calculations. (2 marks)

b) What type of lease is this for the lessor? Justify your conclusion by showing detailed calculations. (4 marks)

c) Prepare a lease amortization schedule for Ontarian Corp. for the first three years of the lease. (4 marks)

d) Prepare the journal entries for the lessor for 2020 and 2021 to record the lease agreement, the receipt of the lease rentals, and the recognition of income. Assume the use of a perpetual inventory system and round all amounts to the nearest dollar. (9 marks)