The following facts pertain to a non-cancellable lease agreement between Woodhouse Leasing Corporation and McKee Electronics Ltd., a lessee, for a computer system:

The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties about costs that have not yet been incurred by the lessor. McKee Electronics Ltd., the lessee, assumes responsibility for all executory costs, which amount to $2,500 per year and are to be paid each October 1, beginning October 1, 2011. (This $2,500 is not included in the rental payment of $30,500.) The asset will revert to the lessor at the end of the lease term. The straightline depreciation method is used for all equipment.
The following amortization schedule for the lease obligation has been prepared correctly for use by both the lessor and the lessee in accounting for this lease using private enterprise GAAP. The lease is accounted for properly as a capital lease by the lessee and as a direct financing lease by the lessor.

Instructions
Answer the following questions, rounding all numbers to the nearest dollar.
(a) Assuming that McKee Electronics€™ accounting period ends on September 30, answer the following questions with respect to this lease agreement.
1. What items and amounts will appear on the lessee€™s income statement for the year ending September 30, 2012?
2. What items and amounts will appear on the lessee€™s statement of financial position at September 30, 2012?
3. What items and amounts will appear on the lessee€™s income statement for the year ending September 30, 2013?
4. What items and amounts will appear on the lessee€™s statement of financial position at September 30, 2013?
(b) Assuming that McKee Electronics€™ accounting period ends on December 31, answer the same questions as in (a)
above for the years ending December 31, 2011, and 2012.
(c) Discuss the differences, if any, in the classification of the lease to McKee Electronics Ltd. if the company were using IFRS in its financial reporting.

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Inception date Lease term Economic life of leased equipment Fair value of asset at October 1, 2011 Residual value at end of lease term Lessor's implicit rate Lessee's incremental borrowing rate Annual lease payment due at the beginning of each year, October 1, 2011 6 years 6 years $150,690 8.5% 8.5% beginning October 1, 2011 $30,500 Interest (8.5%) on Unpaid Obligation/ Net Investment Reduction of Lease Obligation/ Net Investment Balance of Payment/ Obligation/ Date 10/01/11 10/01/11 10/01/12 10/01/13 10/01/14 10/0115 10/01/16 Receipt Net Investment 30,500 30,500 30,500 30,500 30,500 30,500 $183,000 $30,500 20,284 22,008 23,879 25,908 28,111 $150,690 $150,690 120,190 99,906 77,898 54,019 28,111 2 $10,216 8,492 6,621 4,592 2,389 $32,310