Reliable manufactures industrial machinery On January 1, 2023, Reliable (lessor) agrees to lease machinery to Halifax Ships (lessee) Reliable uses ASPE and Halifax Ships uses IFRS The following information relates to the lease agreement The lease term is five years, with no renewal option, and the machine has a useful life of six years The machinerys cost is $720,000 At the end of the lease term the asset reverts to Reliable The assets is expected to have a residual value of $110,000 at this time, and this value is guaranteed by Halifax Ships Halifax Ships depreciates all equipment on a straight line basis The lease agreement requires equal annual payments, beginning on January 1, 2023 Reliable assessed the credit of Halifax Ships and determined the company was a regular credit risk for meeting its obligations Halifax Ships had been a good customer of Reliable for a long time Based on this Reliable decided to enter into the lease agreement using the implicit rate of 6 in setting the lease payments Halifax Ships is aware of this rate Reliable determined that there are no additional costs it might have to incur in connection with this lease during the lease term Required Part A Discuss the nature of this lease from both the viewpoint of the lessor and the lessee In other words, what type of lease is this and explain why Halifax Ships follows IFRS and Reliable follows ASPE Halifax Shipslessee Reliablelessor Part B In Part B ONLY assume that the lease is a capital lease for both the lessor and the lessee Calculate the lease payment Complete the following lease amortization schedule for the first three years of the lease or you may choose to show your calculations with your journal entries If you cannot calculate the lease payment, assume a payment of $140,000 Lease Payment Jan 1 23 Jan 1 24 Jan 1 25 Part C Prepare all the necessary journal entries, including any year end adjusting entries, for the lessee, Halifax Ships for the following dates January 1, 2023 December 31, 2023 Part D Prepare all the necessary journal entries, including any year end adjusting entries, for the lessor, Reliable Manufacturing for the following dates January 1, 2023 December 31, 2023

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Reliable manufactures industrial machinery. On January 1, 2023, Reliable (lessor) agrees to lease machinery to Halifax Ships (lessee). Reliable uses ASPE and Halifax Ships uses

Reliable manufactures industrial machinery. On January 1, 2023, Reliable (lessor) agrees to lease machinery to Halifax Ships (lessee). Reliable uses ASPE and Halifax Ships uses IFRS. The following information relates to the lease agreement.

The lease term is five years, with no renewal option, and the machine has a useful life of six years.
The machinerys cost is $720,000.
At the end of the lease term the asset reverts to Reliable. The assets is expected to have a residual value of $110,000 at this time, and this value is guaranteed by Halifax Ships. Halifax Ships depreciates all equipment on a straight line basis.
The lease agreement requires equal annual payments, beginning on January 1, 2023.
Reliable assessed the credit of Halifax Ships and determined the company was a regular credit risk for meeting its obligations. Halifax Ships had been a good customer of Reliable for a long time. Based on this Reliable decided to enter into the lease agreement using the implicit rate of 6% in setting the lease payments. Halifax Ships is aware of this rate.
Reliable determined that there are no additional costs it might have to incur in connection with this lease during the lease term.

Required:

Part A

Discuss the nature of this lease from both the viewpoint of the lessor and the lessee. In other words, what type of lease is this and explain why. Halifax Ships follows IFRS and Reliable follows ASPE.

Halifax Shipslessee

Reliablelessor

Part B

In Part B ONLY assume that the lease is a capital lease for both the lessor and the lessee.

Calculate the lease payment.

Complete the following lease amortization schedule for the first three years of the lease or you may choose to show your calculations with your journal entries.

If you cannot calculate the lease payment, assume a payment of $140,000.

	Lease Payment

Jan 1/23
Jan 1/24
Jan 1/25

Part C

Prepare all the necessary journal entries, including any year-end adjusting entries, for the lessee, Halifax Ships for the following dates.

January 1, 2023







December 31, 2023

Part D

Prepare all the necessary journal entries, including any year-end adjusting entries, for the lessor, Reliable Manufacturing for the following dates.