To appeal to upscale customers, Rebel Cafe Inc. (RCl) decided to install an expresso machine in its caf to be able to offer espressos and lattes in addition to brewed coffee. After researching different options, RCI selected a top-of-the-line La Marzocco Strada espresso machine. Since the cost of machine was high and the company was still dealing with decreased profits from the pandemic, RCl decided to lease the machine instead of buying it outright. RCl contacted SilverChef Ltd. (SCL), a company that provides flexible equipment financing to firms in the hospitality industry and signed a lease with the following details: - Commencement date: January 1, 2021 - Lease term: 7 years - Estimated useful life of the machine: 10 years - Annual lease payment (due at the beginning of the year): $5,000 - Estimate residual value (unguaranteed) at the end of the lease term: $4,830 - The lease contains no renewal options, and the machine is returned to SCL on termination of the lease - Fair value of the machine: $32,800 - Cost of the machine to SCL: $32,800 - Interest rate implicit in the lease: 6% (the lessee is not readily able to determine this rate) - RCl's incremental borrowing rate: 8% - RCl paid its lawyer $100 to review the lease document - Year ends for RCl and SCL: December 31 - Both companies use straight-line depreciation Required: a) Evaluate how the lessor, SCL, should account for the lease. SCL uses IFRS for financial reporting purposes. Prepare all of the necessary journal entries for the lease for 2021 only. b) Evaluate how the lessee, RCI, should account for the lease. Assume that RCI uses ASPE for financial reporting purposes. Prepare all of the necessary journal entries for the lease for 2021 only. c) Evaluate how the lessee, RCl, should account for the lease. Assume that RCI uses IFRS for financial reporting purposes. Prepare all of the necessary journal entries for the lease for 2021 only. d) Assume that the wear and tear on the espresso machine is higher than expected, and that the assessed value of the machine at the end of 7 years is $1,000. Prepare the necessary journal entries for the lessor, SCL, to record the return of the machine at the end of the lease term. To appeal to upscale customers, Rebel Cafe Inc. (RCl) decided to install an expresso machine in its caf to be able to offer espressos and lattes in addition to brewed coffee. After researching different options, RCI selected a top-of-the-line La Marzocco Strada espresso machine. Since the cost of machine was high and the company was still dealing with decreased profits from the pandemic, RCl decided to lease the machine instead of buying it outright. RCl contacted SilverChef Ltd. (SCL), a company that provides flexible equipment financing to firms in the hospitality industry and signed a lease with the following details: - Commencement date: January 1, 2021 - Lease term: 7 years - Estimated useful life of the machine: 10 years - Annual lease payment (due at the beginning of the year): $5,000 - Estimate residual value (unguaranteed) at the end of the lease term: $4,830 - The lease contains no renewal options, and the machine is returned to SCL on termination of the lease - Fair value of the machine: $32,800 - Cost of the machine to SCL: $32,800 - Interest rate implicit in the lease: 6% (the lessee is not readily able to determine this rate) - RCl's incremental borrowing rate: 8% - RCl paid its lawyer $100 to review the lease document - Year ends for RCl and SCL: December 31 - Both companies use straight-line depreciation Required: a) Evaluate how the lessor, SCL, should account for the lease. SCL uses IFRS for financial reporting purposes. Prepare all of the necessary journal entries for the lease for 2021 only. b) Evaluate how the lessee, RCI, should account for the lease. Assume that RCI uses ASPE for financial reporting purposes. Prepare all of the necessary journal entries for the lease for 2021 only. c) Evaluate how the lessee, RCl, should account for the lease. Assume that RCI uses IFRS for financial reporting purposes. Prepare all of the necessary journal entries for the lease for 2021 only. d) Assume that the wear and tear on the espresso machine is higher than expected, and that the assessed value of the machine at the end of 7 years is $1,000. Prepare the necessary journal entries for the lessor, SCL, to record the return of the machine at the end of the lease term