Question 5 Part-A (15 marks) On 01/01/2016, Al Namaa Company entered into a non-cancelable lease contract, with Heavy Stuff Corp. for an equipment that has an estimated useful life of 10 years and fair market value to the lessor, Heavy Stuff Corp. of $2,800,000. The lease was appropriately classified as a finance lease by both parties. Al Namaa's incremental borrowing rate is 12%. Heavy Stuff Corp's required Return on Investment (ROI) is 10%. Both Al Namaa and Heavy Stuff use the straight-line method to depreciate Property, Plant and Equipment assets. The lease contains the following provisions: 1. The lessor required the lessee to make equal rental payments at period of the contract term. 2. The lease term is for 8 years with a 2-years renewal option. ginning of each 3. The contract includes a termination penalty that makes it certain that there will be a renewal of the lease for a period of 2 years after expiration of the initial lease term. 4. The residual value is expected to be $60,000. The lessee guarantees this residual value by the end of the lease term. 5. Assume that it was impractical for the lessee Required; For Al Namaa Company: determine the implicit rate of the lessor. a. Prepare the necessary journal entries on 01/01/2016 b. Show the Liabilities Sectio of the Statement of Financial Position in relation to the Lease at 31/12/2017 Part-B Al Watan Corp leased an equipment from AIRihab Finance on 1 January, 2017. The lease was classified as a finance lease. The capitalized cost of the equipment was $2,500,000 with no residual value. The lease term was 8 years, while the equipment useful life was 10 years. The interest expense was $206,900 and $190,350 respectively for the first and second years of the lease contract. The financial year for Al Watan Corp ends on 30 September. Assume that Al Watan uses the straight line method of depreciation and that the lease contract does not result into transfer of ownership of the equipment. Required: For Al Watan Corp: Determine the items (and their values) that would appear on the Income Statement for the year ended 30 September 2018. 7