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Prepare appropriate entries for both User and Scape

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Reference no: EM132838354

Problem - Scape Corp. manufactures telephony equipment. Scape leased (sales-type) equipment to User, Inc., on January 1, 2016. Scape produced the equipment at a cost of $5,000,000.

Lease description:

Quarterly rental payments $522,064 at beginning of each period

Lease term 5 years (20 quarters)

No residual value; no BPO

Economic life of equipment 5 years

Implicit interest rate and lessee's incremental borrowing rate 12%

Fair value of asset $8,000,000

Collectability of the rental payments is reasonably assured, and there are no lessor costs yet to be incurred.

Required - Prepare appropriate entries for both User and Scape from the inception of the lease through the second rental payment on April 1, 2016. Depreciation is recorded at the end of each fiscal year (December 31).

Reference no: EM132838354

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