On January 1, 2023, Cullumber Inc. enters into a 5-year non-cancellable lease with Wilson Ltd. for equipment that has an estimated useful life of 5 years and a fair value of $1,962,000. Cullumber has an incremental borrowing rate of 8% and Wilson's implicit rate is 6%, Cullumber uses the straight-line depreciation method to depreciate assets. Cullumber will make annual lease payments on January 1 of each year (with the first payment due at the beginning of the lease) based on the fair value of the equipment. The lease agreement includes a guarantee that Cullumber will take over ownership of the equipment from Wilson for a final payment of $101,000. Both companies adhere to IFRS. (a) Calculate the lease payment Wilson Ltd. will charge Cullumber Inc assuming that there is no mark up on the fair value of the equipment. (Round present value factor calculations to 4 decimal places, e.g. 12.5124.) Click here to view the factor table. Lease payment

On January 1, 2023, Cullumber Inc. enters into a 5-year non-cancellable lease with Wilson Ltd. for equipment that has an estimated useful life of 5 years and a fair value of $1,962,000. Cullumber has an incremental borrowing rate of 8% and Wilson's implicit rate is 6%, Cullumber uses the straight-line depreciation method to depreciate assets. Cullumber will make annual lease payments on January 1 of each year (with the first payment due at the beginning of the lease) based on the fair value of the equipment. The lease agreement includes a guarantee that Cullumber will take over ownership of the equipment from Wilson for a final payment of $101,000. Both companies adhere to IFRS. (a) Calculate the lease payment Wilson Ltd. will charge Cullumber Inc assuming that there is no mark up on the fair value of the equipment. (Round present value factor calculations to 4 decimal places, e.g. 12.5124.) Click here to view the factor table. Lease payment

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Concept explainers

Leasing

Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.

Question

On January 1, 2023, Cullumber Inc. enters into a 5-year non-cancellable lease with Wilson Ltd. for equipment that has an estimated
useful life of 5 years and a fair value of $1,962,000. Cullumber has an incremental borrowing rate of 8% and Wilson's implicit rate is
6%. Cullumber uses the straight-line depreciation method to depreciate assets. Cullumber will make annual lease payments on
January 1 of each year (with the first payment due at the beginning of the lease) based on the fair value of the equipment. The lease
agreement includes a guarantee that Cullumber will take over ownership of the equipment from Wilson for a final payment of
$101,000. Both companies adhere to IFRS.
(a)
Calculate the lease payment Wilson Ltd. will charge Cullumber Inc assuming that there is no mark up on the fair value of the
equipment. (Round present value factor calculations to 4 decimal places, e.g. 12.5124.)
Click here to view the factor table.
Lease payment

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