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Scape Corp. manufactures phony equipment. Scape leased equipment to User, Inc., on January 1, 2013. Scape produced the equipment at a cost of $5,000,000.

Lease description:

Quarterly rental payments $522,064 at beginning of each period

Lease term 5 years
No residual value, no BPO
Economic life of machine 5 years
Implicit interest rate and
lessee's incremental
borrowing rate 12%
Fair value of asset $8,000,000

Collectibility of the rental payments is reasonably assured, and there are no lessor costs yet to be incurred.

Required:

Prepare appropriate entries for both User and Scape from the inception of the lease through the second rental payment on April 1, 2013. Depreciation is recorded at the end of each fiscal year (December 31).

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M948667

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