Langevin Ltd., which has a calendar year end, entered into an equipment lease on June 1, 2020, with GH Financing Limited. The lease term is two years and requires payments of $3,000 at the end of each month beginning September 30. The stated rate of interest in the lease is 6%. As an incentive for entering into the contract, GH has agreed to forgive the first three payments under the lease (June, July, and August).
Instructions
a. What effect, if any, does the forgiveness of the first three payments have on the measurement of the lease transaction on June 1, 2020?
b. Calculate the amount that Langevin should record for the lease obligation on June 1, 2020. Use a financial calculator or Excel functions in your calculation. Hint: Calculate the present value of the monthly payments as at September 1, 2020, and then discount this amount to June 1, 2020.
c. What is the amount of the interest accrual that Langevin will record on June 30, 2020, for the lease obligation?
d. Is there any measurement uncertainty that needs disclosure in the notes to Langevin’s financial statements?
