Question

A lease agreement between Lennox Leasing Company and Gill Company is described in IFRS21-10. Refer to the data in IFRS21-10 and do the following for the lessor.

Inception date: May 1, 2017

Annual lease payment due at the beginning of each year, beginning with May 1, 2017: \(18,829.49

Bargain-purchase option price at end of lease term: \)4,000.00

Lease term: 5 years

Economic life of leased equipment: 10 years

Lessor’s cost: \(65,000.00; fair value of asset at May 1, 2017, \)81,000.00

Lessor’s implicit rate: 10%; lessee’s incremental borrowing rate 10%

The lessee assumes responsibility for all executory costs.

Instructions

(Round all numbers to the nearest cent.)

(b) Prepare a lease amortization schedule for Lennox Leasing Company for the 5-year lease term.

Short answer

Answer

The total reduction of the lease liability is $81,000.

Step-by-step solution

Meaning of Lease Asset

Assets rights that are transferred by the lessor to the lessee by mutual agreementare term leased assets. The leased asset is used by the lessee and rental payments are made in accordance with the lease agreement.

Preparing lease amortization schedule

LENNOX LEASING COMPANY (LESSOR) Lease Amortization Schedule
Date	Annual Lease Payment Plus BPO	Interest (10%) in Liability	Reduction of Lease Liability	Lease Liability
5/1/17				$81,000.000
5/1/17	18,829.49	$ 0	$18,829.49	62,170.51
5/1/18	18,829.49	6,217.05	12,612.44	49,558.07
5/1/19	18,829.49	4,955.81	13,873.68	35,684.39
5/1/20	18,829.49	3,568.44	15,261.05	20,423.34
5/1/21	18,829.49	2,042.33	16,787.16	3,636.18
4/30/22	4,000.00	363.82	3,636.18	0
	$98,147.45	$17,147.45	$81,000.00

Note: There is a rounding error in interest (10%) in liability on 4/30/22.