Question
Oriole Leasing Corporation, which uses IFRS 16, signs a lease agreement on January 1, 2020, to lease electronic equipment to Wai Corporation, which also uses
Oriole Leasing Corporation, which uses IFRS 16, signs a lease agreement on January 1, 2020, to lease electronic equipment to Wai Corporation, which also uses IFRS 16. The term of the non-cancellable lease is two years and payments are required at the end of each year. The following information relates to this agreement.
1. | Wai Corporation has the option to purchase the equipment for $12,400 upon the termination of the lease and this option is reasonably certain to be exercised. | |
2. | The equipment has a cost and fair value of $170,000 to Oriole Leasing Corporation. The useful economic life is two years, with a residual value of $12,400. | |
3. | Wai Corporation is required to pay $5,700 each year to the lessor for insurance costs. | |
4. | Oriole Leasing Corporation wants to earn a return of 9% on its investment. | |
5. | Collectibility of the payments is reasonably predictable, and there are no important uncertainties surrounding the costs that have not yet been incurred by the lessor. |
Using time value of money tables, a financial calculator, or Excel functions, calculate the lease payment that Oriole Leasing would require from Wai Corporation. (Hint: You may find the ROUND formula helpful for rounding in Excel.)
Put Journal entries too.
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