Prepare Lee journal entries

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Reference no: EM132862445

Question - Wong Leasing (lessor) signs a lease on January 1, 2021, with Lee Company (lessee). The lease agreement calls for five annual lease payments of $80,000 at the beginning of each year.

Wong's implicit rate in the lease is 6%. Lee, whose incremental borrowing rate is 5%, cannot readily determine the interest rate implicit in the lease. The asset (a boat) has an estimated value of $50,000 at the end of the lease. Lee has an option to purchase the boat at the end of the lease for $30,000. The leased equipment has an estimated useful life of eight years and no residual value at that time. Lee paid its lawyers $5,000 to review the lease agreement. Lee uses the straight-line method to depreciate similar equipment that it owns and has a December 31 year end. Lee adopts IFRS. Lee decides not to exercise the purchase option at the end of the lease term and returns the boat to Wong.

Required - Prepare Lee's journal entries for 2021, January 1, 2022 and January 1, 2026.

Reference no: EM132862445

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