Company is leasing productionequipment where the estimateduseful life of the equipment is 11years, and the lease term is 8years. As per the current market,the fair value of the equipment is$14 million, while the leaserentals are agreed to be $2.45million payable at the beginningof each year. If an appropriatediscount rate is 12.25%,determine the nature of lease.

Let's analyze the lease agreement to determine its nature from a financial accounting perspective.…

Answered: Company is leasing production equipment…

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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The Harris Company is the lessee on a four-year lease with the following payments at the end of each year: Year 1: Year 2: Year 3: Year 4: $15,500 $20,500 $25,500 $30,500 An appropriate discount rate is 7 percentage, yielding a present value of $76,475. a-1. If the lease is an operating lease, what will be the initial value of the right-of-use asset? Initial value of the right-of-use asset a-2. If the lease is an operating lease, what will be the initial value of the lease liability? Initial value of the lease liability
A lease agreement that qualifies as a finance lease calls for annual lease payments of $25,000 over a six-year lease term (also the asset's useful life), with the first payment on January 1, the beginning of the lease. The interest rate is 5%. Required: Complete the amortization schedule for the first two payments. If the lessee's fiscal year is the calendar year, what would be the amount of the lease liability that the lessee would report in its balance sheet at the end of the first year? What would be the interest payable? Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)
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A lease agreement that qualifies as a finance lease calls for annual lease payments of $36,000 over a four-year lease term (also the asset's useful life), with the first payment on January 1, the beginning of the lease. The interest rate is 5%. Required: Determine the present value of the lease upon the lease's inception. Create a partial amortization table through the second payment on January 1, Year 2. If the lessee's fiscal year is the calendar year, what would be the amounts related to the lease that the lessee would report in its income statement for the first year ended December 31 (ignore taxes)?
ABC Company leased equipment to Best Corporation under a lease agreement that qualifies as a direct finance lease. The cost of the asset is OMR 22,000. The lease contains a bargain purchase option that is effective at the end of the fifth year. The expected economic life of the asset is five years. The lease term is 5 years. The asset is expected to have a residual value of OMR 2,000 at the end of ten years. Using the straight-line method, what would Best record as annual depreciation? Select one: a. OMR 2,000 b. OMR 4,500 c. OMR 5,000 d. OMR 4,000
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Metlock Company leases a building and land. The lease term is 8 years and the annual fixed payments are $840,000. The lease arrangement gives Metlock the right to purchase the building and land for $13,550,000 at the end of the lease. Based on an economic analysis of the lease at the commencement date, Metlock is reasonably certain that the fair value of the leased assets at the end of lease term will be much higher than $13,550,000. What are the total lease payments in this lease arrangement? Total lease payments Click if you would like to Show Work for this question: Open Show Work

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