Luv Company enters into a non-cancelable lease agreement with Soap Company. The details of the agreement are as follows:Inception date Jan 1, 2011Annual lease payment at beginning of each year, starting Jan 1, 2011 $18,000Bargain-purchase option at the end of the lease $4,000Lease term 5 yearsEconomic life of leased equipment 5 yearsLessor’s cost $60,000Fair value of asset $70,000Lessor’s implicit rate 10%Lessee’s implicit rate 10%Present value of annuity due i=10%, n=5 periods 4.16987Present value i=10%, n=5 years 0.621Soap
Company will receive the lease payments. The collectability of the
lease payments is reasonably predictable and there are no uncertainties
surrounding the costs to be incurred by Soap company—the lessor.• For Luv company—the lessee—what is the nature of the lease? What tests does it meet?• For Soap company—the lessor—what is the nature of the lease?• Prepare the amortization schedule for Luv Company for the 5-year term.•
Prepare the journal entries on the books of Luv company—the lessee—for
recording the lease and the recording of lease payment and expenses for
2011.REQUIREMENTS: Original & 1000 words+
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