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bi Calculate the amount of the annual rental payment. (Round answer to 0 decimal places, e.g. 5,275.) Annual rental payment eTextbook and Media List of Accounts $

bi Calculate the amount of the annual rental payment. (Round answer to 0 decimal places, e.g. 5,275.) Annual rental payment eTextbook and Media List of Accounts $

FINANCIAL ACCOUNTING
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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(b) Calculate the amount of the annual rental payment. (Round answer to 0 decimal places, e.g. 5,275.) Annual rental payment eTextbook and Media List of Accounts Save for Later Attempts: 0 of 3 used Submit Answer
Transcribed Image Text:(b) Calculate the amount of the annual rental payment. (Round answer to 0 decimal places, e.g. 5,275.) Annual rental payment eTextbook and Media List of Accounts Save for Later Attempts: 0 of 3 used Submit Answer
On January 1, 2025, Blossom Company leased equipment to Crane Corporation. The following information pertains to this lease. The term of the non-cancelable lease is 6 years. At the end of the lease term, Crane has the option to purchase the equipment for $3,000, while the expected residual value at the end of the lease is $7,000. Equal rental payments are due on January 1 of each year, beginning in 2025. The fair value of the equipment on January 1, 2025, is $170,000, and its cost is $140,000. The equipment has an economic life of 8 years. Crane depreciates all of its equipment on a straight-line basis. Blossom set the annual rental to ensure a 5% rate of return. Crane's incremental borrowing rate is 6%, and the implicit rate of the lessor is unknown. Collectibility of lease payments by the lessor is probable. 1. 2. 3. 4. 5. Both the lessor and the lessee's accounting periods end on December 31. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
Transcribed Image Text:On January 1, 2025, Blossom Company leased equipment to Crane Corporation. The following information pertains to this lease. The term of the non-cancelable lease is 6 years. At the end of the lease term, Crane has the option to purchase the equipment for $3,000, while the expected residual value at the end of the lease is $7,000. Equal rental payments are due on January 1 of each year, beginning in 2025. The fair value of the equipment on January 1, 2025, is $170,000, and its cost is $140,000. The equipment has an economic life of 8 years. Crane depreciates all of its equipment on a straight-line basis. Blossom set the annual rental to ensure a 5% rate of return. Crane's incremental borrowing rate is 6%, and the implicit rate of the lessor is unknown. Collectibility of lease payments by the lessor is probable. 1. 2. 3. 4. 5. Both the lessor and the lessee's accounting periods end on December 31. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
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