Flynn Corporation leases a building to Bishop Company on January 1, 2019. The following facts pertain to the lease. The lease term is 5 years, with equal annual payments of $4,703 at the beginning of the year. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature. The building has a fair value of $22,000, a book value to Flynn of $16,000 and a useful life of 6 years. At the end of the lease term, Flynn and Bishop expect there to be unguaranteed residual of $4,000. Flynn wants to earn a return of 8% on the lease, and the collectability is probably. This rate is known to bishop. Explain how Bishop (lessee) would classify and account for this lease over the lease term. The factor for the Present value of annuity due where n=5 and i=8% is 4.31213. You do not have to include act
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Flynn Corporation leases a building to Bishop Company on January 1, 2019. The following facts pertain to the lease. The lease term is 5 years, with equal annual payments of $4,703 at the beginning of the year. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature. The building has a fair value of $22,000, a book value to Flynn of $16,000 and a useful life of 6 years. At the end of the lease term, Flynn and Bishop expect there to be unguaranteed residual of $4,000. Flynn wants to earn a return of 8% on the lease, and the collectability is probably. This rate is known to bishop.
Explain how Bishop (lessee) would classify and account for this lease over the lease term. The factor for the Present value of annuity due where n=5 and i=8% is 4.31213. You do not have to include actual journals.
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