Reference no: EM132760081

On January 1, 20X0, Gidget's Innovations Inc. (GII) leased a machine for eight years. The residual value at the end of the lease term is estimated at $25,000. The economic and useful life of the machine is 15 years. The residual value at the end of the economic/useful life is estimated at $7,500. GII has the option to purchase the machine at the end of the lease for $2,100. GII has also agreed to take the insurance package on the machinery offered by the lessor.

• GII has agreed to make annual payments of $8,800 on January 1 every year, commencing on January 1, 20X0. The payment includes the insurance premium of $250 per year.
• On January 1, 20X0, GII paid its law firm invoice for $500 to review the lease agreement. GII had not previously accounted for this invoice.
• GII is unable to readily determine that the interest rate implicit in the lease is 7.5%. GII's incremental borrowing costs are 8.5%.
• The leased equipment will be depreciated by GII on a straight-line basis.
• GII and the lessor both report their financial results in accordance with IFRS. Both companies have a December 31 year end.
• The lessor's cost to manufacture the equipment was $40,000. Prior to the asset being leased, the lessor included this item in its inventory.
• GII has a policy of debiting insurance-related costs to expenses when paid and making whatever adjustments are required at year end.
• The lessor has a policy of crediting payments received for the insurance policy to insurance revenue and making whatever adjustments are required at year end.

Required:

Problem a) An amortization schedule for the lessee's lease liability formatted as follows: date; lease payment; interest expense; principal; lease liability.

Problem b) An amortization schedule for the lessee's right-of-use asset formatted as follows: date; depreciation expense; accumulated depreciation; cost; net book value.

Problem c) What information in the two amortization schedules would be included in the lessee's financial statements or the lessee's notes to its financial statements.