35....The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Pina Company, a lessee.Commencement date January 1, Annual lease payment due at the beginning of each year, beginning with January 1, $104,218 Residual value of equipment at end of lease term, guaranteed by the lessee $51,000 Expected residual value of equipment at end of lease term $46,000 Lease term 6yearsEconomic life of leased equipment 6yearsFair value of asset at January 1, $540,000 Lessor’s implicit rate 9%Lessee’s incremental borrowing rate 9%The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased equipment. Suppose Pina received a lease incentive of $5,000 from Faldo Leasing to enter the lease. How would the initial measurement of the lease liability and right-of-use asset be affected?Right-of-use asset $incorrect 514,590 Lease Liability $incorrect -5000What if Pina prepaid rent of $5,000 to Faldo?Right-of-use asset $incorrect 514,590Lease Liability $incorrect 5000

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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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35....

The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Pina Company, a lessee.

Commencement date	January 1,
Annual lease payment due at the beginning of each year, beginning with January 1,	$104,218
Residual value of equipment at end of lease term, guaranteed by the lessee	$51,000
Expected residual value of equipment at end of lease term	$46,000
Lease term	6	years
Economic life of leased equipment	6	years
Fair value of asset at January 1,	$540,000
Lessor’s implicit rate	9	%
Lessee’s incremental borrowing rate	9	%

The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased equipment.

Suppose Pina received a lease incentive of $5,000 from Faldo Leasing to enter the lease. How would the initial measurement of the lease liability and right-of-use asset be affected?

Right-of-use asset		$incorrect 514,590
Lease Liability		$incorrect -5000

What if Pina prepaid rent of $5,000 to Faldo?

Right-of-use asset		$incorrect 514,590
Lease Liability		$incorrect 5000

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