Reference no: EM132556944

Question - The following facts pertain to anon-cancelable lease agreement between Alforces Leasing Company and Electronic Adict Company, a lessee, for a computer system.

Inception Date October 1, 2018

Lease Term 6 years

Economic life of leased equipment 6 years

FV of asset at October 1, 2018 $ 300,383

Residual value at end of lease term -0-

Lessor's Implicit rate 10%

Lessee's incremental borrowing rate 10%

Annual lease payment due at the beginning

Of each year, beginning with

October 1, 2018 $ 62,700

The lessee assumes responsibility for all executory costs, which amount to $ 5,500 per year and to be paid each October 1, beginning October1, 2018. (This $ 5,500 is not include in the rental payment of $ 62,700.) The asset will revert to the lessor at the end of the lease term. The straight-line depreciation method is used for all equipment.

Instruction -

a. Identify the type of lease involved and give reasons for your clasifications with computation of the present value of the minimum lease payments and prepare journal entry for LESSEE to record the agreement at October 1, 2018!

b. Assuming the lessee's accounting period ends on September 30, answer the following questions with respect to this lease agreements:

1. What items and amounts will appear on the lessee's income statement for the year ending September 30, 2019?

2. What items and amounts will appear on the lessee's statement of financial position at September 30, 2019?

3. What items and amounts will appear on the lessee's income statement for the year ending September 30, 2020?

4. What items and amounts will appear on the lessee's statement of financial position at September 30, 2020?