Reference no: EM132620019

Lynx Pro Inc. (Lynx) is a Canadian public company with a December 31 year end. Lynx owns the Lynx Pro Soccer Club of Moncton. The soccer club needed a new stadium. Kevin Marsden, the CEO of Lynx, arranged the following with Genuine Capital Ltd. (Genuine):

• Genuine entered into a contract with a construction company for $11,750,000 to purchase land and build a stadium on the outskirts of Moncton. The expected useful life of the stadium is 25 years.
• On September 30, 2019, Genuine rented the stadium to Lynx for 22 years at $855,325 per year. Rent is payable on September 30 of each year beginning in 2019.
• Lynx uses straight-line amortization for all real estate assets.
• The rate implicit in the lease (known to Lynx) is 8% per annum.

Required:

Question a) Discuss whether this is a finance or operating lease for Genuine (the lessor). Consider at least four lease criteria in your discussion. Include detailed calculations where appropriate.

Question b) Assume that Lynx (the lessee) correctly recorded the leased stadium as a finance lease. Prepare the journal entries that Lynx should record:

i. At September 30, 2019

ii. For the three months ended December 31, 2019