On January 1, 2023, Lavery Corp., which follows ASPE, leased equipment to Blossom Ltd., which follows IFRS. Both Lavery and Blossom have calendar year ends. The following information concerns this lease: 1. 2. 3. 4. 5. 6. The term of the non-cancellable lease is six years, with no renewal option. The equipment reverts to the lessor at the termination of the lease, at which time it is expected to have a residual value (not guaranteed) of $6,100. Blossom depreciates all its equipment on a straight-line basis. Equal rental payments are due on January 1 of each year, beginning in 2023. The equipment's fair value on January 1, 2023, is $148,000 and its cost to Lavery is $111,000. The equipment has an economic life of seven years. Lavery set the annual rental to ensure a 8% rate of return. Blossom's incremental borrowing rate is 9% and the lessor's implicit rate is unknown to the lessee. Collectibility of lease payments is reasonably predictable and there are no important uncertainties about any unreimbursable costs that have not yet been incurred by the lessor.

On January 1, 2023, Lavery Corp., which follows ASPE, leased equipment to Blossom Ltd., which follows IFRS. Both Lavery and Blossom have calendar year ends. The following information concerns this lease: 1. 2. 3. 4. 5. 6. The term of the non-cancellable lease is six years, with no renewal option. The equipment reverts to the lessor at the termination of the lease, at which time it is expected to have a residual value (not guaranteed) of $6,100. Blossom depreciates all its equipment on a straight-line basis. Equal rental payments are due on January 1 of each year, beginning in 2023. The equipment's fair value on January 1, 2023, is $148,000 and its cost to Lavery is $111,000. The equipment has an economic life of seven years. Lavery set the annual rental to ensure a 8% rate of return. Blossom's incremental borrowing rate is 9% and the lessor's implicit rate is unknown to the lessee. Collectibility of lease payments is reasonably predictable and there are no important uncertainties about any unreimbursable costs that have not yet been incurred by the lessor.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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