Reference no: EM133065933

Question - Bucky Corp. agreed to a non-cancellable lease for which the following information is available:

1. The asset is new at the inception of the lease term and is worth $600,000.

2. The lease term is 6 years, starting July 1, 2015.

3. The estimated useful life of the asset is 9 years.

4. The residual value of the leased asset will be $93,000 at the end of the lease term. The residual value is unguaranteed.

5. The interest rate implicit in the lease is equal to Bucky's incremental borrowing interest rate of 6%.

6. Lease payments begin on July 1, 2015 and follow on a semi-annual basis every January 1 and July 1.

7. Ownership of the asset reverts to the lessor at the end of the lease.

8. Bucky uses straight-line depreciation for all of its assets.

Required -

a. Compute the lease payment as determined by the lessor.

b. Determine what type of lease this arrangement is for Bucky. Show calculations of the criteria used to support your conclusion by using ASPE.

c. Disregard your answer to part (b). Assume the leased asset has a guaranteed residual value of $93,000. Determine the type of lease with this new condition. Prepare any journal entries for Bucky for the 2015 fiscal year related to the lease arrangement.

d. Repeat part (c) from the perspective of the lessor. The cost of the asset to the lessor is $510,000. Prepare all journal entries from the lessor's perspective for the 2015 fiscal year related to the lease arrangement.