Question 2

Here below are the information of two pieces of equipment:

Equipment A:

CiCi Limited ("CiCi") leased the equipment to DiDi Limited ("DiDi") on January 1, 2018. CiCi purchased the equipment from EiEi Machines Corporation ("EiEi") at acost of $112,080.

Lease term 2 years

Quarterly rental payments $15,000 at the end of each period

Economic life of asset 2 years

Fair value of asset $112,080

Implicit interest rate 8%

Equipment B:

DiDi also leased the equipment from EiEi on January 1, 2018. EiEi manufactured the equipment at a cost of $85,000.

Lease term 2 years

Quarterly rental payments $15,000 at the beginning of each period

Economic life of asset 2.5 years

Fair value of asset $112,080

Implicit interest rate 8%

Required:(Answers should be rounded to the nearest dollar amount.)

1. Explain how CiCi Limited should classify the lease of Equipment A.
2. Prepare the appropriate entries for DiDi Limited, from the inception of the lease to 31 March 2018.
3. Explain how EiEi Machines Corporation should classify the lease of Equipment B.
4. Prepare all necessary journal entries for EiEi Machines Corporation, from the inception of the lease through the second lease payment on 1 April, 2018.