Reference no: EM132561465

Question - Core Corp., a private corporation that adheres to IFRS, is a manufacturer of truck trailers. On January 1, 2020, Core leases ten trailers to Rowlands Inc. under a six-year non-cancellable lease agreement. The following information about the lease and the trailers is provided:

1. Equal annual payments of $108,158 (due on December 31 each year) will be payable, to provide Core with an 8% return on their investment.

2. Title to the trailers will pass to Rowlands at the end of the lease.

3. At January 1, 2020, the fair value of each trailer is $ 50,000. The cost of each trailer to Core Corp. is $ 45,000. Each trailer has an expected useful life of nine years.

4. Collectibility of the lease payments is reasonably assured, and any unreimbursable costs under the lease that are likely to be incurred by Core can be reasonably estimated.

Core Corp. uses the straight line method of amortization and uses a perpetual inventory system.

Required -

a) What type of lease is this for the lessor? Discuss.

b) Prepare required journal entries for the lessor for 2020 regarding this lease.