Question

Brecker Company leases an automobile with a fair value of \(10,906 from Emporia Motors, Inc., on the following terms:

1. Non-cancelable term of 50 months.
2. Rental of \)250 per month (at end of each month). (The present value at 1% per month is \(9,800.)
3. Estimated residual value after 50 months is \)1,180. (The present value at 1% per month is \(715.) Brecker Company guarantees the residual value of \)1,180.
4. Estimated economic life of the automobile is 60 months.
5. Brecker Company’s incremental borrowing rate is 12% a year (1% a month). It is impracticable to determine Emporia’s implicit rate.

Instructions

(c) Record the lease on Brecker Company’s books at the date of inception.

Short answer

Answer

The lease liability is $10,515.

Step-by-step solution

Meaning of Lease Liability

Lease liability means the amount of the lease liability in respect of any lease that would be required to be included in the statement of financial position prepared in accordance with the IFRS at the time of any determination and shall have a maturity period before the first date of such lease.

Preparing journal entry

Date	Particular	Debit ($)	Credit ($)
	Leased Equipment	10,515
	Lease Liability		10,515