Question

The following facts are for a non-cancellable lease agreement between Alpha Corporation and Beta Corporation, a lessee:

Inception Date	July 1, 2018
Annual lease payment due at the beginning of each year, starting July 1, 2018	$20,066.26
Purchase option price at end of lease term reasonably certain to be exercised by Beta	$4,500.00
Lease term	5 years
Economic life of leased equipment	10 years
Lessor’s cost	$60,000.00
Fair value of asset at July 1, 2018	$88,000.00
Lessor’s implicit rate	9%
Lessee’s incremental borrowing rate	9%

The collectability of the lease payments is reasonably predictable, and there are no important uncertainties about costs that have not yet been incurred by the lessor. The lessee assumes responsibility for all executory costs. Both Beta and Alpha use IFRS 16.

question 4 - A lease agreement between Alpha Corporation and Beta Corporation is described in the previous question (question 3)

Provide the following for Alpha Corporation, the lessor.

Required:

1. Calculate the amount of gross investment at the inception of the lease.

2. Calculate the amount of net investment at the inception of the lease.

3. Prepare the journal entries to reflect the signing of the lease and to record the receipts and income related to this lease for the years 2018, 2019, and 2020.  

Answer 1