Reference no: EM132981094

Question: On July 1st, 20X1, the Youngsun Kim Corporation leased equipment to the Han Fang Chung Corporation. Both the Youngsun Kim and Han Fang Chung Corporation uses ASPE. The following information pertains to this lease transaction.

-The term of the lease is for six years, with no renewal option. The equipment reverts back to the lessor at the termination of the lease, at which time it is expected to have a residual value (not guaranteed) of $18,000.
-The Corporation amortizes all its equipment on a straight line basis.
-The equipment has an economic life of seven years.
-Collectibility of the lease payments is reasonably predictable and there are no important uncertainties about any unreimbursable costs that have not yet been incurred by the lessor.
-Equipment rental payments are due on June 30th, of each year, except for the first down payment which is due on July 1st, 20X1.
-The Corporation sets the annual rental payment to ensure a 9.0% rate of return. Han Fang Chung Corporation's incremental borrowing rate is 10.0% and the lessor's implicit rate is unknown to the lessee.
-The equipment's fair market value as at July 1st, 20X1 is $432,000 and its cost to the Youngsun Kim is $333,000.
-Both corporations use reversing entries.
-The year end for Han Fang Chung Corporation is December 31st.
-The year end for Youngsun Kim Corporation is June 30th. Required:

-What type of lease is this for Youngsun Kim Corporation?

-What type of lease is this for the Han Fang Chung Corporation?

-Calculate the annual lease payment.

-Prepare the required Journal entries for 20X1 and 20X2 for the Youngsun Kim Corporation.

-Prepare the required Journal entries for 20X1 and 20X2 for the Han Fang Chung Corporation.