On January 1, 2020, Energy Corp. (lessor) entered a 10 year noncancellable lease agreement with...
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On January 1, 2020, Energy Corp. (lessor) entered a 10 year noncancellable lease agreement with Stanton Corp. (lessee) for equipment which was carried in Energy's accounting records at $2,265,000 and had a fair value of $2,400,000. The annual lease payments are $355,000 are due each January 1. The first payment was made on January 1, 2020, when the lease agreement was finalized. The Lessee corporation pays all executory costs directly to 3rd party except for maintenance fees of $1,000 per year (not included in the lease payment) The implicit interest rate of 10% which was stipulated in the lease agreement and known to lessee. The Lessee incremental borrowing rate is 9%. Stanton expects the machine to have a ten-year life with residual value which is guaranteed equal to $1,500. It can be depreciated on a straight-line basis. Collectability of the rentals is reasonably assured, and there are no important uncertainties surrounding the costs yet to be incurred by Energy. Both entities follow IFRS Please answer the following: a. Classify the lease contract in the lessor books. Explain your answer b. Record the journal entries on Jan. 1,2020 for inception of lease contract and receiving the first payment in the lessor books
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