Please answer in detail and a clear format: On January 1, 2013, Boss Limited signed off on a leasing contract with MR Stationery to lease a specialized, state-of-the-art photocopier. The following information relates to the lease contract. 1. The cost of the photocopier is $525,000 and the fair value of the equipment on January 1 2013 is $700,000. 2. The term of the lease is 7 years with no option to renew and the photocopier has an estimated useful life of 9 years 3. At the end of the lease term, the photocopier must be returned to the Boss Limited. It has a guaranteed residual value of $50,000. MR Stationery uses the straight line method of depreciation (when applicable) 4. The lease agreement requires annual rental payments beginning January 1 2013 5. Boss Limited desires a 5% rate of return which is known to MR. MR Stationery’s incremental borrowing rate is 7%. Requirements: (Assume the financial year ends on December 31) a) Discuss the nature of the lease for the lessee using the 5 tests criteria b) Prepare the lease schedule for the lessee c) Prepare the necessary journal entries for January 1 2013 and Dec 31 2013
Please answer in detail and a clear format: On January 1, 2013, Boss Limited signed off on a leasing contract with MR Stationery to lease a specialized, state-of-the-art photocopier. The following information relates to the lease contract. 1. The cost of the photocopier is $525,000 and the fair value of the equipment on January 1 2013 is $700,000. 2. The term of the lease is 7 years with no option to renew and the photocopier has an estimated useful life of 9 years 3. At the end of the lease term, the photocopier must be returned to the Boss Limited. It has a guaranteed residual value of $50,000. MR Stationery uses the straight line method of depreciation (when applicable) 4. The lease agreement requires annual rental payments beginning January 1 2013 5. Boss Limited desires a 5% rate of return which is known to MR. MR Stationery’s incremental borrowing rate is 7%. Requirements: (Assume the financial year ends on December 31) a) Discuss the nature of the lease for the lessee using the 5 tests criteria b) Prepare the lease schedule for the lessee c) Prepare the necessary journal entries for January 1 2013 and Dec 31 2013
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Please answer in detail and a clear format:
On January 1, 2013, Boss Limited signed off on a leasing contract with MR Stationery
to lease a specialized, state-of-the-art photocopier. The following information relates
to the lease contract.
1. The cost of the photocopier is $525,000 and the fair value of the equipment on
January 1 2013 is $700,000.
2. The term of the lease is 7 years with no option to renew and the photocopier has
an estimated useful life of 9 years
3. At the end of the lease term, the photocopier must be returned to the Boss
Limited. It has a guaranteed residual value of $50,000. MR Stationery uses the
straight line method of depreciation (when applicable)
4. The lease agreement requires annual rental payments beginning January 1 2013
5. Boss Limited desires a 5% rate of return which is known to MR. MR Stationery’s
incremental borrowing rate is 7%.
Requirements: (Assume the financial year ends on December 31)
a) Discuss the nature of the lease for the lessee using the 5 tests criteria
b) Prepare the lease schedule for the lessee
c) Prepare the necessary journal entries for January 1 2013 and Dec 31 2013
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