In: Accounting
Modern Office Solutions Inc. leases most of its office furniture and equipment.
On January 1, 2020, Modern entered into a five-year lease for new equipment. The payments are to be made at the beginning of each lease year. Modern has the option of purchasing the equipment at the end of the lease. The present value of the minimum lease payments is equal to the fair value of the equipment at lease inception. Modern follows IFRS.
Other information is as follows:
Fair value of the equipment at lease inception$ |
$75,000 |
Expected value at the end of the lease |
16,000 |
Purchase option price (expected to be exercised) |
8,000 |
Interest rate implicit in the lease (known to Modern) |
12% |
Modern’s incremental borrowing rate |
11% |
Expected useful life of the equipment |
8 years |
Residual value at the end of 8 years |
$2,000 |
Amortization method for equipment Straight line
Lease payments ?
Show all calculations. Round all amounts to the nearest dollar.