Question

Scape Corp. manufactures telephony equipment. Scape leased equipment to User, Inc. on January 1, 2018. Scape produced the equipment at a cost of $4,200,000. Lease description: Quarterly rental payments $469,857 at beginning of each period Lease term 5 years (20 quarters) No residual value; no BPO Economic life of equipment 5 years Implicit interest rate and lessee’s incremental borrowing rate 12% Fair value of asset $7,200,000 Required: Prepare appropriate entries for both User and Scape from the beginning of the lease through the second rental payment on April 1, 2018. Depreciation and amortization are recorded at the end of each fiscal year (December 31).

Answer 1