Reference no: EM133032818
Question - Williams Wicked Construction Inc. (WWC) entered into a contract to lease a bulldozer on December 31, 20x0. Information relative to the lease follows:
The lease contract is for an 8 year lease with payments due on December 31 of every year with the first payment due December 31, 20x0. The payment includes $3,200 in annual executory costs payable directly to the lessor for maintenance of the bulldozer.
The estimated economic life of the bulldozer is 10 years.
The residual value at the end of the lease term is $40,000 and is guaranteed by the lessee. At the outset of the lease, WWC estimated that the payout on the guarantee would be $15,000.
WWC's incremental borrowing rate is 4.5%. It knows that the implicit rate in the lease is 5%.
WWC depreciates similar equipment that it owns on a straight-line basis.
On December 31, 20x8, WWC returned the bulldozer to the lessor. The fair value of the bulldozer was established at $30,000.
WWC's year end is December 31 and WWC follows IFRS.
Required -
a) What lease payment would be required by the lessor? Assume that the fair value of the bulldozer is $250,000.
b) Prepare all required journal entries on the lessee's books on the following dates:
- December 31, 20x0
- December 31, 20x1
- December 31, 20x8
c) Repeat part (b) on the assumption that WWC is a private company subject to ASPE.