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Computing Lease Liability Lessee Company enters into a 6-year finance lease of non-specialized equipment with Lessor Company on January 1. Lessee has agreed to pay $22,400 annually beginning immediately on January 1. The lessor estimates the residual value of the equipment to be $4,000 at lease end, and the lessee guarantees the residual value. The economic life of the asset is 7 years. The lessee's incremental borrowing rate is 7% and the lessor's implicit rate is not readily determinable by the lessee company. Compute the value of the lease liability for the lessee on January 1, under the following separate scenarios. a. The lessee estimates that the underlying asset will have a fair value of $4,000 at the end of the lease. b. The lessee estimates that the underlying asset will have a fair value of $1,600 at the end of the lease. Note: Round your answers to the nearest whole dollar. a. Lease lability $ b. Lease lability s 114,240 x 0x

Computing Lease Liability Lessee Company enters into a 6-year finance lease of non-specialized equipment with Lessor Company on January 1. Lessee has agreed to pay $22,400 annually beginning immediately on January 1. The lessor estimates the residual value of the equipment to be $4,000 at lease end, and the lessee guarantees the residual value. The economic life of the asset is 7 years. The lessee's incremental borrowing rate is 7% and the lessor's implicit rate is not readily determinable by the lessee company. Compute the value of the lease liability for the lessee on January 1, under the following separate scenarios. a. The lessee estimates that the underlying asset will have a fair value of $4,000 at the end of the lease. b. The lessee estimates that the underlying asset will have a fair value of $1,600 at the end of the lease. Note: Round your answers to the nearest whole dollar. a. Lease lability $ b. Lease lability s 114,240 x 0x

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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Computing Lease Liability Lessee Company enters into a 5-year finance lease of non-specialized equipment with Lessor Company on January 1. Lessee has agreed to pay $22,400 annually beginning immediately on January 1. The lessor estimates the residual value of the equipment to be $4,000 at lease end, and the lessee guarantees the residual value. The economic life of the asset is 7 years. The lessee's incremental borrowing rate is 7% and the lessor's implicit rate is not readily determinable by the lessee company. Compute the value of the lease liability for the lessee on January 1, under the following separate scenarios. a. The lessee estimates that the underlying asset will have a fair value of $4,000 at the end of the lease. b. The lessee estimates that the underlying asset will have a fair value of $1,600 at the end of the lease. Note: Round your answers to the nearest whole dollar. a. Lease liability $ b. Lease lability $ 114,240 x 0x
Transcribed Image Text:Computing Lease Liability Lessee Company enters into a 5-year finance lease of non-specialized equipment with Lessor Company on January 1. Lessee has agreed to pay $22,400 annually beginning immediately on January 1. The lessor estimates the residual value of the equipment to be $4,000 at lease end, and the lessee guarantees the residual value. The economic life of the asset is 7 years. The lessee's incremental borrowing rate is 7% and the lessor's implicit rate is not readily determinable by the lessee company. Compute the value of the lease liability for the lessee on January 1, under the following separate scenarios. a. The lessee estimates that the underlying asset will have a fair value of $4,000 at the end of the lease. b. The lessee estimates that the underlying asset will have a fair value of $1,600 at the end of the lease. Note: Round your answers to the nearest whole dollar. a. Lease liability $ b. Lease lability $ 114,240 x 0x
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