Scape Corp. manufactures phony equipment. Scape leased equipment to User, Inc., on 1st January, 2013. Scape produced the equipment at a cost of $5,000,000.
Lease description:
Quarterly rental payments $522,064 at starting of each period
Lease term five years
No residual value, no BPO
Economic life of machine 5 years
Implicit interest rate and
lessee's incremental
borrowing rate 12 percent
Fair value of asset $8,000,000
Collectibility of the rental payments is reasonably assured, and there are no lessor costs yet to be
incurred.
Required:
Prepare suitable entries for both User and Scape from the inception of the lease through the second rental payment on 1st April, 2013. Depreciation is recorded at the end of each fiscal year (31st December).