Saturn Corp., which uses IFRS, signs non-renewable, non-cancellable lease agreement to lease robotic equipment from Lu Inc. The following information concerns the lease agreement.

Inception date 1-Jan-21

Lease term 5 years

Fair value of equipment Jan. 1, 2020 $290,000

Economic life of leased equipment 6 years

Annual rental payments starting Jan. 1, 2020 $59,361

Option to purchase at the end of the term none

Depreciation method Straight-line

Residual value (Guaranteed) $16,000

Saturns incremental borrowing rate 6%

Required:

1. Calculate the amount of the right-of-use asset and lease liability and prepare the initial entry to reflect the signing of the lease agreement. (4 marks)

2. Prepare the journal entries on Saturn Corp.s books to record the payments related to this lease for the years 2021 and 2022 as well as any adjusting journal entries at its fiscal year ends of December 31, 2021 and 2022. (8 marks)

3. Assume that a bargain purchase option for $16,000 exists in addition to the information listed above. Calculate the annual depreciation expense. (3 marks)