On September 1, 2022, Pierre A. Ltd. (PAL) leased a fleet of tractor trailers through their financial institution, GEE-E Capital (GEE-E)

PART C (10 marks):

On September 1, 2022, Pierre A. Ltd. (PAL) leased a fleet of tractor trailers through their financial institution, GEE-E Capital (GEE-E). Terms of the lease were as follows:

• The lease term is 5 years, non-cancellable, and requires equal payments made on September 1^st of each year with the first payment payable on the commencement date of the lease.
• GEE-E purchased the equipment at its fair value of $185,500 and immediately transferred it to PAL.
• PAL has the option to purchase the asset for $10,000 at the end of the lease. PAL is also required to provide a residual guarantee for the expected value of the asset. Based on prior experience, PAL has historically only had to payout 80% of the residual value of leased assets under similar transactions.
• The equipment has an estimated economic life of 6 years with an estimated residual value of nil. The estimated residual value of the asset at the end of the lease is $15,000.
• GEE-E’s required rate of return (excluding any initial direct costs) is 6.5%.
• PAL’s incremental borrowing rate is 7% and the implicit rate in the lease is not known to PAL .
• GEE-E paid its account manager commissions of $11,700 for securing the lease and PAL incurred administrative fees of $1,500 to arrange the lease.
• It was agreed that GEE-E would provide annual maintenance throughout the year for the trailers for a fee of $2,500 payable on September 1 of each year with the first payment due on September 1, 2022, and this is considered a non-lease component. PAL elects to adopt the practical expedient available to it regarding accounting for lease components and related non-lease components as a single lease component.
• PAL and GEE-E both have December 31 year-ends, prepare financial statements in accordance with IFRS, both companies depreciate similar assets using the straight-line depreciation method.

Required:

Prepare all necessary journal entries for 2021 for both the lessor AND lessee.

• Please make sure to indicate the DATES of the journal entries

Please clearly mark: LESSOR’s entries / LESSEE’s entries