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Ivanhoe Company, a machinery dealer, leased a machine to Oriole Corporation on January 1, 2025. The lease is for an 8-year period and requires equal annual payments of $29,300 at the beginning of each year. The first payment is received on January 1, 2025. Ivanhoe had purchased the machine during 2024 for $160.000. Collectibility of lease payments by Ivanhoe is probable. Ivanhoe set the annual rental to ensure a 6% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Ivanhoe at the termination of the lease. Assume that Oriole Corporation does not know the rate implicit in the lease used by Ivanhoe, and Oriole's incremental borrowing rate is 8%. In addition, assume that Oriole incurs initial direct costs of $15,000. Click here to view factor tables. (a)

Ivanhoe Company, a machinery dealer, leased a machine to Oriole Corporation on January 1, 2025. The lease is for an 8-year period and requires equal annual payments of $29,300 at the beginning of each year. The first payment is received on January 1, 2025. Ivanhoe had purchased the machine during 2024 for $160.000. Collectibility of lease payments by Ivanhoe is probable. Ivanhoe set the annual rental to ensure a 6% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Ivanhoe at the termination of the lease. Assume that Oriole Corporation does not know the rate implicit in the lease used by Ivanhoe, and Oriole's incremental borrowing rate is 8%. In addition, assume that Oriole incurs initial direct costs of $15,000. Click here to view factor tables. (a)

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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Ivanhoe Company, a machinery dealer, leased a machine to Oriole Corporation on January 1, 2025. The lease is for an 8-year period and requires equal annual payments of $29,300 at the beginning of each year. The first payment is received on January 1, 2025. Ivanhoe had purchased the machine during 2024 for $160,000. Collectibility of lease payments by Ivanhoe is probable. Ivanhoe set the annual rental to ensure a 6% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Ivanhoe at the termination of the lease. Assume that Oriole Corporation does not know the rate implicit in the lease used by Ivanhoe, and Oriole's incremental borrowing rate is 8 %. In addition, assume that Oriole incurs initial direct costs of $15,000. Click here to view factor tables. (a) Compute the amount of the lease liability and right-of-use asset for Oriole. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to O decimal places e.g. 5,275.) Lease liability Right-of-use asset $ $
Transcribed Image Text:Ivanhoe Company, a machinery dealer, leased a machine to Oriole Corporation on January 1, 2025. The lease is for an 8-year period and requires equal annual payments of $29,300 at the beginning of each year. The first payment is received on January 1, 2025. Ivanhoe had purchased the machine during 2024 for $160,000. Collectibility of lease payments by Ivanhoe is probable. Ivanhoe set the annual rental to ensure a 6% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Ivanhoe at the termination of the lease. Assume that Oriole Corporation does not know the rate implicit in the lease used by Ivanhoe, and Oriole's incremental borrowing rate is 8 %. In addition, assume that Oriole incurs initial direct costs of $15,000. Click here to view factor tables. (a) Compute the amount of the lease liability and right-of-use asset for Oriole. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to O decimal places e.g. 5,275.) Lease liability Right-of-use asset $ $
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