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Determine the nature of this lease

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Reference no: EM133163572

Question - Brooklyn Inc. offers boat tours down the Hudson River. The company has signed a lease for a tour boat. The company follows ASPE. The terms of the lease are as follows:

Lease Term begins on January 1, 2022 for 3 years

Lessor's leasing rate (known to Brooklyn) 8%

Brooklyn's rate of incremental borrowing 10%

Economic life of the boat 5 years

Residual value (not guaranteed by Brooklyn) $50,000

Fair market value of the boat on January 1, 2022 $83,932

Required -

1. Perform all three tests to determine the nature of this lease, and indicate whether the lease is to be considered a capital or operating lease.

2. Determine the annual rental payment that the lessor will charge Brooklyn.

3. Prepare lease amortization schedule.

4. Prepare all the journal entries on Brooklyn's books that relate to the lease up to and including January 1, 2023.

5. Identify all the accounts and amounts that Brooklyn will show on Balance Sheet and Income Statement for the year ending December 31, 2022.

6. Prepare the journal entry prepared by Brooklyn on January 1, 2025 at then end of the rental contract agreement.

7. Under IFRS 16, how would the Lessor classify this contract? Be specific.

Reference no: EM133163572

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