Quick answer with solutions please

q14

Lessee co. and Lessor ltd. Both follows IFRS. Jan 1, 2020, they enter into a lease agreement that the lessee agreed to lease equipment for 7 years and to assume all costs and risks of ownership. The lease effective Jan 1, 2020, and requires annual rental payments each January, starting Jan 1, 2020.

Lessees incremental borrowing rate is 7%, and the implicit interest rate used by lessor ltd is 7% and known to the lessee.

The equipment was purchased by lessor on this day Jan 1, 2020 for $1,095,047 paid cash by lessor. Equipment useful life is 10 years and the estimated residual value is $32,500 guaranteed. Lessee and Lessor depreciate similar equipments using straight line method. At the end of the lease, there is a bargain purchase option amount of $25,000. Collectability of lease payments is assured, also there is no assurance that the lessee will exercise the bargain purchase option. At the end of the lease term, lessee will return the equipment to lessor. Lessee and Lessor year end is Dec 31, of every year.

Instructions:

Assuming this is a Finance (capital), (Right for use asset) type lease for the Lessor and Lessee: (Round all your calculation to nearest $)

a- Calculate the minimum lease payment (MLP) that will be charged by the lessor.

b- Prepare the Lessee Journal entries as of Jan 1, 2020 (show your calculation)

c- Prepare the journal entries for the lessee as of Dec 31, 2020

d- Prepare all the journal entries that the lessee will prepare for 2021