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Make the entries required at October

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Question - Surrey Steelworks Limited (SSL), leased metal molding equipment, a specialized asset with a 10 year useful life, from Fraser Valley Leasing Limited (FVL). Both companies have a December 31 year end and both companies report under IFRS.

The lease has the following characteristics:

Lease Payment: $18,750

Payment frequency: annual

Payment timing: Beginning of the year

Lease term: 7 years

Lease commencement: October 1, 2020

Purchase option at the end of lease: $8,000

-FVL priced the lease to earn a return of 6% (the implicit rate) and the estimated fair value of the equipment is $100,000.

-The leased equipment is a high resale piece of equipment, the estimated future market value of the asset is expected to be above $8,000.

PART A - From the lessor's perspective, analyze ALL of the lease criteria and provide a conclusion as to whether this is a finance or operating lease.

PART B - Make the entries required at October 1, 2020 and December 31, 2020 for Surrey Steelworks Ltd.

Reference no: EM132865157

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