Q4.On January 1, 20X2 Big Boom Inc, A firearms Ammunition reloading business , entered into an eight year non cancellable lease with Shrapnel Inc for equipment having an estimated useful life of 12 years and fair value that you need to calculate because the shrapnel accountant confided to you that he doesn’t know how to calculate because he really doesn’t have a CPA , but his employer thinks he does. ( take a shot at your ethical responsibilities as a CPA in this situation , if any , and if you get it right, there is a 1 mark bonus) The lease rate is 8%. Big boom will use straight line method to depreciate the asset. Both companies use IFRS 16. The lease contains the following provisions: 1. Annual lease payments of $838,000( including a $380,000 payment for insurance – you can debit insurance expense) , Payable on January 1 each year . First payment is Jan 1, 20X2. 2. A bargain purchase option that will be exercised by big boom. At the end of the lease Big Boom will pay $300,000 for the equipment. a. Calculate the present value of the minimum lease payments rounded to the nearest dollar. show calculations for possible -part marks. b. Prepare a lease amortization schedule through January 1, 20X4 and round values to the nearest dollar
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