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ACCT Corp. is a manufacturer of truck trailers. On 1 January 2020, ACCT Corp. leased a...

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Accounting

ACCT Corp. is a manufacturer of truck trailers. On 1 January2020, ACCT Corp. leased a trailer to a customer under a six-yearlease agreement. The following information about the lease and thetrailers is provided:

1. Equal annual payments of $10 816 are due on 31 December eachyear. The interest rate implicit in the lease is 8%.

2. The lease can be cancelled by the customer upon payment of apenalty of $40,000.

3. There is a purchase option that the customer will be able toexercise at the end of the sixth year, for $2 000. The estimatedfair value of the trailer at the end of the sixth year is $10000.

4. The fair value of the trailer is $51,260. The cost of atrailer to ACCT Corp. is $45,000. The trailer has an expecteduseful life of nine years.

REQUIRED:

(1) What type of lease is this for the lessor? Provideexplanation and justification for your classification consideringAASB 16.

(2) Prepare the journal entries for the lessor from 1 January2020 to 31 December 2020 (the reporting period end of ACCT Corp.)to record the lease arrangement.

Answer & Explanation Solved by verified expert
3.9 Ratings (362 Votes)
1 Requirement 1 The following facts are given in the question 1 Annual Payment 10816 2 Interest rate 8 3 Lease cancellation penalty 40000 4 Purchase option at the end of 6 years of lease Amount to be paid for that 2000 5 Life of the trailer 9 years So as per the facts provided this is a financial lease The reasons are 1 There    See Answer
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