Please see the attached case 5 and check the other attachment to help with solving the problem

Case 11-6 Lessee Ltd. Lessee Ltd., a British company that applies IFRSs, leased equipment from Lessor Inc. on January 1, 2013, for a period of three years. Lease payments of $100,000 are due to Lessor Inc. each year. Other expenses (e.g., insurance, taxes, maintenance) are also to be paid by Lessee Ltd. and amount to $2,000 per year. The lessor did not incur any initial direct costs. The lease contains no purchase or renewal options and the equipment reverts back to Lessor Inc. on the expiration of the lease. The remaining useful life of the equipment is four years. The fair value of the equipment at lease inception is $265,000. Lessee Ltd. has guaranteed $20,000 as the residual value at the end of the lease term. The $20,000 represents the expected value of the leased equipment to the lessee at the end of the lease term. The salvage value of the equipment is expected to be $2,000 after the end of its economic life. The lessee's incremental borrowing rate is 11 percent (Lessor's implicit rate is 10 percent and is calculable by the lessee from the lease agreement). The junior accountant of Lessee Ltd. analyzed the assets under lease, determined whether the lease was an operating lease or capital lease, and prepared the applicable journal entries. The senior accountant of Lessee Ltd. reviewed the junior accountant's analysis and prepared a separate analysis. As the finance controller, you were given both analysis to determine the correct accounting treatment. Calculations and journal entries performed by your junior and senior accountant are below. Present Value of the Lease Obligation Using the rate implicit in the lease (10 percent), the present value of the guaranteed residual value would be $15,026 ($20,000 0.7513), and the present value of the annual payments would be $248,690 ($100,000 2.4869). Using the incremental borrowing rate (11 percent), the present value of the guaranteed residual value would be $14,624 ($20,000 0.7312), and the present value of the annual payments would be $244,370 ($100,000 2.4437). Junior accountant analysis: Since the equipment reverts back to Lessor Inc., it is an operating lease. Entries to be posted in Years 1, 2, and 3: Dr. Lease expense Dr. Insurance expense Cr. Cash $100,000 $2,000 $102,000 (Operating lease rental paid to Lessor Inc.) Senior accountant analysis: Step 1 Lease classification Copyright 2010 Deloitte Development LLC All Rights Reserved. Case 11-6c: Lessee Ltd. Page 2 The lease term is for three years. The useful life of the equipment is four years. Since the lease term is for a major part of the useful life of the equipment, it is a finance lease. Step 2 Computation of the lease asset and obligation Since the lessee's incremental borrowing rate is greater than the lessor's implicit rate in the lease, compute the present value of the minimum lease payments using the 11 percent rate. Present value of the minimum lease payments = $100,000 2.4437 = $244,370. Step 3 Allocation of payments between interest and lease obligation Since interest has to be charged on the straight-line method, the following is the allocation of the interest and the reduction in the lease liability. Cash Payment $ Year Interest Expense (11%) $ 100,000 100,000 100,000 Reduction in Lease Obligation $ 26,881 26,881 26,881 0 1 2 3 73,119 73,119 73,119 Balance of Lease Obligation $ 244,370 171,251 98,131 25,012 Journal entry in Year 1 to record the payments: Dr. Rent expense Dr. Interest expense Dr. Lease obligation Cr. Cash $2,000 $26,881 $73,119 $102,000 Required: 1. Was the junior accountant's analysis correct? Why or why not? 2. Was the senior accountant's analysis correct? Why or why not? 3. How would the answer differ under U.S. GAAP? Copyright 2010 Deloitte Development LLC All Rights Reserved. Yang How to Search for and Cite Related Accounting Authoritative Literature 1) Access the FASB's Codification Research System through http://aaahq.org/ascLogin.cfm with User ID: AAA52069 and Password: PQ96mqJ a) After logging in with appropriate User ID and Password (case sensitive), click on the link \"FASB Accounting Standards Codification\". Note that this set of user ID and password is shared among all accounting students within our department. It has capacity limitation. If you cannot log in with the User ID and Password above, try again later. b) After prompting onto FASB Codification website, you will first be prompted into a \"license agreement --- professional view\" page. Click \"I accept\" in order to continue. c) You can find related authoritative literature by browsing the different topics listed on the left-side panel. This sometimes could be time-consuming if you have no idea of what you are looking for. It will be helpful to first read the related pages in the textbook or your class note to get a sense about what you are looking for before starting. d) You can also find related authoritative literature by typing in keyword in the blank space on the top-right-hand corner on the screen. In this case, choice of relevant keyword would be very important. Again, it will be helpful to first read the related pages in the textbook or your class note to get a sense about what you are looking for before starting. e) Look for the paragraph that would support for your responses to the project questions. f) When writing your response, cite the related paragraph by including a serial number, e.g., 310-10-35-47, to let reader know which topic, which subtopic, which section, and which paragraph you cite the wording from. It would be even better that you include the related sentence from the paragraph in the writing. For example, you can say \"Based on FASB ASC 310-10-35-47, \"Loans and trade receivables that management has the intent and ability to hold for the foreseeable future or until maturity or payoff shall be reported in the balance sheet at outstanding principal adjusted for any chargeoffs, the allowance for loan losses (or the allowance for doubtful accounts).\" Therefore, ...\" 2) Access the International Financial Reporting Standards (IFRS) through http://www.ifrs.org/IFRSs/Pages/IFRS.aspx. a) You would need to register yourself for eIFRS Basic so as to access basic and free standards. b) Use the email and password to log in and access basic international financial reporting standards. c) When writing your response, cite the literature which supports your answers. For example, you can say \"Based on IAS 1 paragraph 27, \"an entity shall prepare its financial statements, except for cash flow information, using the accrual basis of accounting.\" Therefore, ...\