Reference no: EM133008459

On 1 July 20x2, Large Mart signs a four (4) year lease contract for a photo copier for its office. At the  end of the lease period Large Mart will have the option to purchase the photo copier for $500 (but the  expected fair value of the photo copier at the end of the lease term is $100). Large Mart is able to cancel the lease contract but any cancellation requires the payment of 85% of the remaining lease
liability as a penalty. Large Mart expects that the useful life of the photo copier is six (6) years and all items in the Machinery/Equipment Account of Large Mart are depreciated using the sums-of-digits  method.The lease contract requires Large Mart to make the following payments: $2,000 when the contract is  signed (1 July 20x2), and $2,000 at the end of each year (30 June) during the lease term. The Large Mart accounting department has determined that the interest rate implicit in the lease is 8%, and that  the market price of the photo copier at the time the lease contract is signed is equal to $6,899.

Required:

Problem a) Calculate the present value of the minimum lease payments AND explain your calculations

Problem b) Determine if the lease is a finance lease or an operation lease, and provide a DETAILEDexplanation of your decision

Problem c) Provide all journal entries that are necessary in the books of Large Mart to account for the signing of the lease contract AND all lease payments that Large Mart makes during the financial  year ended 30 June 20x3

Problem d) State the amount of depreciation that will be recorded in the books of Large Mart for the year ended 30 June 20x3 AND explain how you have determined this amount