Pain Limited (“Pain”) manufactures dental chairs for sale and for lease. On October 1, 2019 they enter into a 5 year, non-cancellable agreement to lease 4 chairs to Red Deer Dental. (“RDD”). Pain has a December 31st fiscal year-end and RDD has a September 30th fiscal year-end. Both companies depreciate their equipment on a straight-line basis and the chairs would have a nil (zero) residual value at the end of their economic life. Terms of the lease agreement are as follows: · Pain’s carrying value of the tables (4 * $6,500) $ 26,000 · Annual payments (4 chairs * $1,650 per chair) due each October 1 (commencing 2019) $ 6,600 · Bargain purchase option after 5 years (4 chairs * $250 per chair) $ 1,000
Pain Limited (“Pain”) manufactures dental chairs for sale and for lease. On October 1, 2019 they enter into a 5 year, non-cancellable agreement to lease 4 chairs to Red Deer Dental. (“RDD”).
Pain has a December 31st fiscal year-end and RDD has a September 30th fiscal year-end. Both companies
Terms of the lease agreement are as follows:
· Pain’s carrying value of the tables (4 * $6,500) $ 26,000
· Annual payments (4 chairs * $1,650 per chair) due
each October 1 (commencing 2019) $ 6,600
· Bargain purchase option after 5 years (4 chairs * $250 per chair) $ 1,000
· Economic life of the chairs 6 years
· Interest rate implicit in the lease 10%
There are no unreimbursable costs likely to be incurred by the lessor and the credit risk associated with the lease is normal.
Pain follows IFRS, RDD follows ASPE.
a) Prepare all necessary
b) Prepare all necessary journal entries at October 1, 2019 and September 30, 2020 for RDD.
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