Kawasaki Ltd., a private corporation adhering to ASPE, enters into a non-cancellable lease agreement on July 1, 2022, to lease equipment from Motoyama Ltd. The
following data are relevant to the lease agreement: 1. The term of the lease is 5 years, with no renewal option. Payments of $127,547
are due on July 1 of each year, with the first payment due July 1, 2022. 2. The fair value of the equipment on July 1, 2022 is $550,000. The equipment
has an economic life of 8 years with no residual value. 3. Kawasaki depreciates similar equipment it owns on the double declining-
balance basis. 4. Kawasaki's incremental borrowing rate is 10%. The lessee is aware that the
lessor used an implicit rate of 8% in calculating the lease payments. 5. Appropriate present value factor for 5 periods at 8% is 4.31213; at 10%,
4.16986.
Instructions
a) What type of lease this is for Kawasaki? What is your rationale? b) Prepare the journal entries on Kawasaki's books that relate to the lease agreement for the following dates. Round all amounts to the nearest dollar. Include a partial
amortization schedule.
1. July 1, 2022
il. December 31, 2022 (fiscal year end)
iii. July 1, 2023