Scape Corp manufactures telephony equipment. Scape leased equipment it User, Inc. on January 1, 2011. Scape produced the equipment at a cost of $5,000,000.
Qtrly rental payments $522,064.00- beginning of each period
Lease term 5yrs (20qtrs)
No residual value ; No BPO
Economic life of Equipment 5yrs
Implicit interest rate and
Lessee incremental borrowing rate 12%
Fair value asset $8,000,000
Collectability of the rental payments is reasonably assured, and there are no lessor costs yet to be incurred.
Required:
Prepare appropriate entries for both User and Scape from the inception of the lease through the second rental payment on April 1, 2011. Depreciation is recorded at the end of each fiscal year (December 31).