Question $11)$ Tractors for Farmers Corp. $($TFF$)$ uses IFRS, TFF manufactures large tractors

at a cost of $$98,000$ per unit. On January $1,2023,$ TFF offered Noma Agri Inc. $($NAI$)$ the

option of leasing a tractor from TFF$.$ Pertinent details are:

The leasing offered was a four year non$-$cancellable agreement. The annual lease

payment is $$24,589$ per lease year, with the first payment due at the beginning of

each year starting January $1,2023$

The estimated economic life of the tractor$-$trailer is $10$ years. Its estimated salvage

value is $$500.$

The normal cash selling price of tractor is $$122,000$

The lease does not include a renewal option but NAI has the option to purchase the

unit at the expiration of the lease for $$40,000.$ The estimated residual value at that

time is $$70,000,$ which is guaranteed.

NAI's incremental borrowing rate is $7\mathrm{.}0\%.$ NAI knows that the interest rate implicit in

the lease is $6\mathrm{.}0\%$

NAI depreciates similar equipment that it owns on a straight line basis

NAI uses all of its equipment and machinery as long as possible.

Both companies have December $31$ year end

Required:

Lessor

A$)$ TFF has decided to charge NAI a lease payment of $$24,589$ per lease year. Showing

your work clearly, how would NAI have determined this lease payment? Show your

calculations. $(2$ marks$)$

B$)$ Evaluate how TFF $($the lessor$)$ should account for the lease transaction. $(2$ marks$)$

Lessee

C$)$ Return to the original given information. Prepare the journal entries for NAI on

January $2023,$ December $31,2023,$ and January $1,2024.(7$ marks$)$

D$)$ Prepare all of the applicable journal entries on December $31,2026$