On 31 December 20X0, Columbia Inc. (Lessee) entered into an agreement with Scotia Ltd. (the Lessor)...

On 31 December 20X0, Columbia Inc. (Lessee) entered into an agreement with Scotia Ltd. (the Lessor) to lease equipment. Columbia Inc. will make four equal payments of $100,000 at the beginning of each lease year. Columbia Ltd. anticipates that the equipment will have a residual value of $80,000 at the end of the lease, net of removal costs. Columbia Inc. has the option of (1) paying $80,000 to retain the equipment or (2) allowing Scotia Ltd. to remove it. Scotia Ltd.’s implicit interest rate in this lease is 7%. Columbia Inc.’s incremental borrowing rate is 8%. Columbia Inc. depreciates the leased equipment on a straight-line basis over four years. The lease commences on 1 January 20X1. Assume that the fair value of the equipment on the open market is greater than the present value of the lease payments.

Lessor

1. Prepare an amortization table for this lease for the lessor. 2. Prepare all entries that the lessor will record for this lease over its full term, using the gross method. Assume that the lessee exercises the purchase option. 3. On the lessor’s 31 December 20X2 SFP, what amount will appear for the net lease receivable?

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ekkarill92 answered 1 year ago

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