Question 1 Kensington Ltd decides to lease some equipment from Piccadilly Ltd on the following terms: Duration of lease 15 years Life of leased asset 17 years Unguaranteed residual $5,000 Lease payment $6,000 at lease inception Annual lease payments (in arrears) $4,500 per year (15 payments) If the interest rate implicit in the lease is 8%, what is the fair value of the equipment at the inception of the lease (rounded to the nearest dollar)? A. $44 518 B. $46 094 C. $40 094 D. $48 399 Question 2 Hoof & Tail Ltd enters into a non-cancellable lease agreement with Equine Industries to lease some equipment under the following conditions: Duration of the lease 9 years Life of leased asset 11 years Unguaranteed residual $6,000 Lease payment $7.000 at lease inception Lease payments (in arrears $5,000 per year (9 payments) The interest rate implicit in the lease is 11% and the fair value of the asset at the inception of the lease is $37031. What are the journal entries to record the lease, the payment at lease inception and the first lease payment in the books of the lessee (rounded to the nearest dollar)? To record the lease and lease payment at lease inception: Lease Asset 37 031 0 Lease fiability 37 031 Dr Lease liability 7 000 Cash 7 000 To record the first lease payment Lease payment 5000 Cash 5000 To record the lease and lease payment at lease inception De Lease Asset 34 685 34 685 Lease liability D Lease liability 7 000 CA Cash 7 000 To record the first lease payment DF Lease Expense 3045 DE Lease liability 1 955 5 000 CA Cash C To record the lease and lease payment at lease inception Dr Lease Asset 37 031 Lease liability 37 031 Dr Lease Asset 7 000 7 000 Cash To record the first lease payment De Lease Expense 4073 D Lease payment 927 5 000 Cash To record the lease and payment at lease inception Dr Lease asset 37 031 37 031 Lease liability DI Lease liability 7 000 7 000 Cash To record the first payment Dr Interest expense 3 303 Dr Lease liability 1 697 5 000 CE Cash