A agrees to lease a robotic welding unit from Company B on January 1, Year 1. The following conditions apply to the lease: Company • The term of the lease is five years, non-cancellable, and requires payments of $101,350 at the beginning of each year. • The robotic welding unit will have a fair value of $50,000 at the end of the lease; an estimated useful life of five years; and $45,000 guaranteed residual value. There are no renewal options, so the unit will revert to Company B at the termination of the lease. • Company A can borrow at a 5% interest rate. • Company A uses straight-line depreciation on its assets. • Company B set its annual rate of return at 4%, and Company A is aware of this rate. • Present values are as follows: • Present value of lease payments at 4%: $469,240.37 • Present value of lease payments at 5%: $460,737.10 • Present value of residual value at 4%: $38,457.00 • Present value of residual value at 5% : $37,021.50 How much should Company B record as a lease receivable on January 1, Year 1? O $506,261.87 O $507,697.37 O $506,750.00 O $497,758.60

A agrees to lease a robotic welding unit from Company B on January 1, Year 1. The following conditions apply to the lease: Company • The term of the lease is five years, non-cancellable, and requires payments of $101,350 at the beginning of each year. • The robotic welding unit will have a fair value of $50,000 at the end of the lease; an estimated useful life of five years; and $45,000 guaranteed residual value. There are no renewal options, so the unit will revert to Company B at the termination of the lease. • Company A can borrow at a 5% interest rate. • Company A uses straight-line depreciation on its assets. • Company B set its annual rate of return at 4%, and Company A is aware of this rate. • Present values are as follows: • Present value of lease payments at 4%: $469,240.37 • Present value of lease payments at 5%: $460,737.10 • Present value of residual value at 4%: $38,457.00 • Present value of residual value at 5% : $37,021.50 How much should Company B record as a lease receivable on January 1, Year 1? O $506,261.87 O $507,697.37 O $506,750.00 O $497,758.60

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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