FABS Ltd acquired an item of equipment and entered into a non-cancellable lease agreement with MBC Equipment Ltd on 1 January 2019. The lease consists of the following: Date of inception: 1/1/19Duration of lease: 5 yearsLife of leased asset: 6 yearsLease payments (annual): $250,000 (annual) which includes $30,000 for maintenance and insurance costs per annum. Guaranteed residual value(Added to final payment): $70,000Interest rate: 14% Required:Determine the present value of minimum lease rental payment. Prepare the journal entries for FABS (the Lessee) using the Net Method for the following Transfer of controlPayment of annual payments for 2019 and 2020. In your own words, explain how do we account for service costs that are included within a contract to lease an asset? give narrations also answer step by step show full working

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Answered: Required: Determine the present value…

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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FABS Ltd acquired an item of equipment and entered into a non-cancellable lease agreement with MBC Equipment Ltd on 1 January 2019. The lease consists of the following:

Date of inception: 1/1/19
Duration of lease: 5 years
Life of leased asset: 6 years
Lease payments (annual): $250,000 (annual) which includes $30,000 for maintenance and insurance costs per annum.
Guaranteed residual value

(Added to final payment): $70,000

Interest rate: 14%

Required:

Determine the present value of minimum lease rental payment.
Prepare the journal entries for FABS (the Lessee) using the Net Method for the following

Transfer of control
Payment of annual payments for 2019 and 2020.

In your own words, explain how do we account for service costs that are included within a contract to lease an asset? give narrations also answer step by step show full working

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