Ayayai Corporation (“Ayayai”) manufactures equipment with an estimated economic life of 12 years. On May 30, 2020, Ayayai leases it to Gadget Corporation (“Gadget”) for a period of 10 years. Assume both companies follow ASPE. Details of the lease are as follows:● Equipment has a fair value and cost at the inception of the lease: $269,243.● Guaranteed residual value: $27,000.● Annual lease payment, due at beginning of each year: $34,000.● Lease contains no renewal options and the equipment reverts to Ayayai at the end of the lease.● Gadget’s incremental interest rate, as well as implicit rate is 7%.● Gadget uses straight-line amortization for similar equipment that it owns.● Ayayai has determined that collectibility of lease payments is reasonably predictable and that no additional costs will be incurred.Prepare the journal entries for the lessee and lessor at May 30, 2020, and at December 31, 2020, which is the year end for both the lessee and lessorPlease help with the caluation needed for this question thank you in advance.

The question is based on the concept of Lease Accounting.

Answered: Ayayai Corporation (“Ayayai”)…

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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Ayayai Corporation (“Ayayai”) manufactures equipment with an estimated economic life of 12 years. On May 30, 2020, Ayayai leases it to Gadget Corporation (“Gadget”) for a period of 10 years. Assume both companies follow ASPE. Details of the lease are as follows:

●		Equipment has a fair value and cost at the inception of the lease: $269,243.
●		Guaranteed residual value: $27,000.
●		Annual lease payment, due at beginning of each year: $34,000.
●		Lease contains no renewal options and the equipment reverts to Ayayai at the end of the lease.
●		Gadget’s incremental interest rate, as well as implicit rate is 7%.
●		Gadget uses straight-line amortization for similar equipment that it owns.
●		Ayayai has determined that collectibility of lease payments is reasonably predictable and that no additional costs will be incurred.

Prepare the journal entries for the lessee and lessor at May 30, 2020, and at December 31, 2020, which is the year end for both the lessee and lessor

Please help with the caluation needed for this question thank you in advance.

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