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On January 1, 2020, Lavery Corp., which follows ASPE, leased equipment to Crane Ltd., which follows IFRS 16. Both Lavery and Crane have calendar year ends. The following information concerns this lease.

1.		The term of the non-cancellable lease is six years, with no renewal option. The equipment reverts to the lessor at the termination of the lease, at which time it is expected to have a residual value (not guaranteed) of $6,600. Crane Ltd. depreciates all its equipment on a straight-line basis.
2.		Equal rental payments are due on January 1 of each year, beginning in 2020.
3.		The equipments fair value on January 1, 2020, is $152,000 and its cost to Lavery is $111,000.
4.		The equipment has an economic life of seven years.
5.		Lavery set the annual rental to ensure a 8% rate of return. Cranes incremental borrowing rate is 9% and the lessors implicit rate is unknown to the lessee.
6.		Collectibility of lease payments is reasonably predictable and there are no important uncertainties about any unreimbursable costs that have not yet been incurred by the lessor.

Using time value of money tables, a financial calculator, or Excel spreadsheet functions, calculate the amount of the annual rental payment. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 5,275.)

QUESTIONS:

A)

Annual rental payment

$____

B)

Prepare all necessary journal entries and adjusting entries for Crane for 2020.

Date	Account Titles and Explanation	Debit	Credit

(To record inception and payment of lease.)

Date	Account Titles and Explanation	Debit	Credit

(To record depreciation expense.)

Date	Account Titles and Explanation	Debit	Credit

(To record interest.)

C)

Prepare all necessary journal entries and adjusting entries for Lavery for 2020.

Date	Account Titles and Explanation	Debit	Credit
1/1/20

(To record inception of lease and cost of goods sold.)

Date	Account Titles and Explanation	Debit	Credit

(Collection of lease payment.)

Date	Account Titles and Explanation	Debit	Credit

(To record interest.)