The full question is as follows:
West Coast Snowboarding Ltd. (WSL) leased specialized equipment from Eastern Speciality Leasing Co. (ESL), both publically accountable enterprises with December 31 year-ends. The lease terms were as follows: 1. Lease date: April 30, 2018 Z. Lease term 7 years; non-cancellable 3. Estimated economic useful life: 9 years 4. Fair value of specialized equipment $230,000 (which is not necessarily ESL's cost). 5. Equipment cost to ESL: $228,284 WSL's incremental cost of borrowing is 5%; also the rate implicit in the lease. 7. ESL will provide a maintenance contract on the equipment at an annual charge of $2,400 payable on the lease contract anniversary date. 8. WSL applies a straight line amortization policy. 9. ESL has satised itself that WSL Ltd. is a normal credit risk. 9' Round all amounts to the nearest $; no cents Required #1: Calculate the annual minimum lease payment ESL will quote to WSL with no qualifying (Guaranteed or unguaranteed NRV, BPO) conditions. Required #2: Assume that the terms of the lease are altered and now included a Bargain Purchase Option (BPO) of $22,000; no extenuating associated costs by either party. Calculate the annual minimum lease payment ESL will quote to WSL in this circumstance. Required #3: Consistent with the fact pattern of required #2, prepare all relevant entries for both parties for the year ended December 31, 2018: WSL entries: April 30: December 31: ESL entries: April 30: December 31 Required#4: Consistent with the fact pattern of required #2, prepare, for each party and in good form, the balance sheet presentation as at December 31, 2018, associated with _e_r_i_t _r_i_r_1_g_i_r_1_t_g this lease. Required #5: Record the exercise of the BPO at the conclusion of the lease by both parties. WSL entry (gs) ESL entry (12:5): Requirement #6: Repeat requirement #5 (that is at the end of the lease agreement) assuming that, at the lease inception (beginning), the $22,000 was for a Guaranteed Residual Value (GRV) rather than a Bargain Purchase Option (GRV) and assuming the fair market value of the asset at the end of the lease is $24,000. WSL entry: ESL entry: Requirement #7' How would the inltial entries have changed, if at all, for each party, if the residual value of $22,000 at the inception for the lease was not guaranteed? Indicate any value changes; preparing entries is not required. WSL: ESL: Requirement #8: Assume ESL is a manufacturing company and the manufactured cost of the specialized equipment leased to WSL is $170,000. Assume the selling price of the equipment is equivalent to that amount ESL paid to the equipment supplier. Record the entry in this situation for ESL. (The basis of the entry can be found in the class notes.)
