See attachment

1 answer below »

See attachment

Answered Same Day Nov 01, 2021

Solution

Yash answered on Nov 01 2021

149 Votes

a.)
Lessor should classify these lease as an operating lease on account of following reasons:
i.) The lease does not transfer ownership of the asset to the lessee at the end of the lease term.
ii.) Equipment is not specialized in nature & had alternative use at the end of lease term.
iii.) Asset had a substantial residual value at the end of lease term
Note: In the question, discounting rate is not mentioned. Hence, we were not been able to compare Present value of minimum lease payment with fair value of asset.
.) Workings:
Total Lease payment to be received = 25000*7 = 1,75,000
Estimated Guaranteed Value to be received = 35,000
Initial Direct cost to be incu
ed = 3,000
Hence, the annual rental income to be recognized = (175000+35000)/7 = $ 30,000
Journal Entry:
At the commencement of Lease:
Bank A/c……………....Dr. 25,000 -
To Advance Lease rental - ...

SOLUTION.PDF

See attachment

Solution

Answer To This Question Is Available To Download

Related Questions & Answers

Submit New Assignment