Reference no: EM132964665

Question 1 - On January 1, 2020, Zincorne Corp. entered into an agreement to lease a specialized machine from Lessor Inc. The machine has a current fair market value of $150,000. Details of the lease contract follow:

The lease term is five years.

The economic life of the equipment is six years.

Zincorne has the option to purchase the equipment for $10,000 at the end of the lease term. The estimated value of the equipment at this time is $27,000.

The implied interest rate in the lease is 8% but is not known to Zincorne, nor is it readily determinable.

Zincorne's current IBR is 9%.

Annual payments of $33,200 commence on January 1, 2020.

Zincorne follows IFRS and has a December 31 year end.

What is the balance of the lease liability at the end of December 31, 2021?

a) $124,323

b) $100,343

c) $99,324

d) $91,602

Question 2 - On March 31, 2020, the lease agreement Mega Corp. had with Lease Co. expired. The lease had originally been for eight years. At the lease's inception, the asset was expected to have a useful life of 12 years. The lease arrangement had a BPO that gave Mega the option to purchase the asset for $15,000 at the end of the lease term.

At March 31, prior to the BPO payment, Mega had the following accounts and balances related to this lease:

ROU asset $75,000

Accumulated depreciation $50,000

Lease liability $15,000

Which statement describes how Mega will derecognize the lease if Mega chooses to pay the BPO?

a) The lease liability will continue to be recognized until the end of the ROU asset's life.

b) The ROU asset will remain on Mega's records and be increased to its FV when the lease is derecognized.

c) Mega will record a gain or loss equal to the difference between the carrying value of the ROU asset and the BPO amount.

d) No gain or loss is recorded on derecognition of the lease.