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Calculate the amount of the annual rental payment required. (Round present value factor calculations to 5 decimal places, eg. 1.25124 and the final answer to O decimal places eg. 58,972.) Annual rental payment %24 Attempts: 0 of 1 used Submit Answer Save for Later

Calculate the amount of the annual rental payment required. (Round present value factor calculations to 5 decimal places, eg. 1.25124 and the final answer to O decimal places eg. 58,972.) Annual rental payment %24 Attempts: 0 of 1 used Submit Answer Save for Later

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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Kingbird Leasing Company agrees to lease equipment to Oriole Corporation on January 1, 2020. The following information relates to the lease agreement. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. The cost of the machinery is $514,000, and the fair value of the asset on January 1, 2020, is $677,000. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $55,000. Oriole estimates that the expected residual value at the end of the lease term will be 55,000. Oriole amortizes all of its leased 1. 2. 3. equipment on a straight-line basis. The lease agreement requires equal annual rental payments, beginning on January 1, 2020. The collectibility of the lease payments is probable. 4. 5. 6. Kingbird desires a 10% rate of return on its investments. Oriole's incremental borrowing rate is 11%, and the lessor's implicit rate is unknown. (Assume the accounting period ends on December 31.) Click here to view factor tables.
Transcribed Image Text:Kingbird Leasing Company agrees to lease equipment to Oriole Corporation on January 1, 2020. The following information relates to the lease agreement. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. The cost of the machinery is $514,000, and the fair value of the asset on January 1, 2020, is $677,000. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $55,000. Oriole estimates that the expected residual value at the end of the lease term will be 55,000. Oriole amortizes all of its leased 1. 2. 3. equipment on a straight-line basis. The lease agreement requires equal annual rental payments, beginning on January 1, 2020. The collectibility of the lease payments is probable. 4. 5. 6. Kingbird desires a 10% rate of return on its investments. Oriole's incremental borrowing rate is 11%, and the lessor's implicit rate is unknown. (Assume the accounting period ends on December 31.) Click here to view factor tables.
(b) Calculate the amount of the annual rental payment required. (Round present value factor calculations to 5 decimal places, eg. 1.25124 and the final answer to O decimal places e.g. 58,972.) Annual rental payment %24 Attempts: 0 of 1 used Submit Answer Save for Later
Transcribed Image Text:(b) Calculate the amount of the annual rental payment required. (Round present value factor calculations to 5 decimal places, eg. 1.25124 and the final answer to O decimal places e.g. 58,972.) Annual rental payment %24 Attempts: 0 of 1 used Submit Answer Save for Later
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