Question: LEASE PAYMENT

Eloida manufacturing Ltd. agrees to lease equipment to Hans Co. on May 1, 2020

Eloida follows IFRS and HANS follows ASPE.

The following information relates to the lease agreement:

(1) Equipment's cost is $380,000 and the asset's fair value on May 1, 2020 is $465,000.

(2) The lease agreement requires equal annual rental payments beginning May 1, 2020.

(3) The lease payment will include executory costs of $2,000.

(4) There are no abnormal risks associated with the collection of the lease payments from Hanes Co. Also, there are no additional unreimbursable costs to be incurred in connection with the leased equipment

(5) The lease agreement states the implicit interest rate of 10%. Eloida does not know Hane's incremental borrowing rate.

(6) The equipment has an estimated economic life of 15 years.

(7) The term of the lease is 6 years.

(8) Hanes Co. has the option to purchase the equipment for $38,000 upon the termination of the lease. This option is reasonably certain to be exercised.

REQUIRED :

Calculate the lease payment that Eloida Manufacturing Ltd. would require from Hanes Co. Complete the blue boxes below for the specific variables and state in the conclusion the lease

payment. Use either of the two excel functions discussed in class to solve for the lease payment. Round the lease payment to the nearest whole dollar

(Function formulas in Excel please)

Variables required:

RATE =

n =

FV =

Type =

PV =

The lease payment Eloida Manufacturing would charge Hanes Co. is : ___________________