Reference no: EM132626145

PT. Mawar, which is engaged in transportation services, entered into negotiations with PT. ABC to rent a truck with the following conditions:

a. The term of the lease is 5 years starting from 1 Jan 2019 with the condition that it cannot be canceled. Annual rental fee of Rp. 5,520,632 are paid at the beginning of the year including insurance costs of Rp. 150,000.

b. At that time, a leased truck could be purchased in cash at a market price of Rp. 25,000,000 with an estimated economic life of 5 years without residual value.

c. In the agreement, it is stated that the lessee has an option right to buy the truck after the lease period ends for Rp. 5,000,000 and the asset's fair value is Rp. 10,000,000.

d. The depreciation method used by the lessee is straight-line.

e. The interest rate on dr bank loans by the lessee is 14% per annum.

f. The rate of return on investment determined by the lessor is 11% per annum and the rate is known by the lessee.

g. During negotiations, no costs are incurred.

Requested:

Question a) What type of lease agreement does the negotiation above include? Give the reason.

Question b) Keep the entries required to record transactions for the lesse related:

1. when renting or buying

2. when paying installments

3. when recording depreciation expense.