Clear font and in details please ! Albert Corp. manufacturs truck trailers. On J

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Clear font and in details please !

Albert Corp. manufacturs truck trailers. On January 1, 2018, Albert leases ten trailers to Einstein Inc. under a six year non-cancellable lease agreement. The following information about the lease and the trailers is provided: Equal annual payments (due on December 31 each year) will be payable, to provide Albert with an 8% return on their investment. 2 Einstein has an option to buy the trailers for $1 at the end of the lease. 3 Each trailer has an expected useful life of nine years. 4 At January 1, 2018, te fai value of each trailer is $50,000. The cost of each trailer to Albert Corp. is $45,000 Einstein could borrow at 10% to purchase the trailer separately. Collectibility of the lease payments is reasonably assured, and any unreimbursable costs under the lease that are likely to be incurred by Albert can be reasonably estimated. 6 Both Albert and Einstein follow IFRS Required a) b) What type of lease is this for the lessee and lessor? Briefly explain your answer Calculate the annual lease payment. Prepare the journal entries for the LESSEE for 2018 and 2019 to record the lease agreement, the receipt of the lease rentals, and the recognition of income. (First calculate the value of the equipment and liability to the lessee). Prepare the journal entries for the LESSOR for 2018 and 2019 to record the lease agreement, the receipt of the lease rentals, and the recognition of income. Assume the use of a perpetual inventory system. c) d) Round all amounts to the nearest dollar.

Explanation / Answer

a)

For the Lessor

It is a sales-type lease to the lessor (Albert Corp.) . The Lessor (Albert) earns the profit on the sale is $60,000, which is recognized in the year of sale (2018). It is not an operating lease because title to the assets passes to the lessee at very subsidized cost (i.e. $ 1) , and the present value ($50,000 x 10 =$500,000) of the lease payments equals or exceeds 90% ($45,000*10 = $450,000) of the fair value of the leased trailers.

For the Lessee

It is a Finance Lease because :

b) Calculation of Annual Lease Payment

Workings: Calculation of Annuity Factor

c)

Step 1: Calculation of Fair Value of Equipment

Step 2: Journal Entry in the books of lessee

d) Journal Entry in the books of Lessor

Dear Student,

Best effort has been made to give quality and correct answer. But if you find any issues please comment your concern. I will definitely resolve your query.

Fair Value of Trailors = Lease Rental x Annuity Factor $          500,000 = Lease Rental x 4.62288 Lease Rental = $        500,000 / 4.62288 Lease Rental = $        108,158

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