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lanigans Company leases a building to Wellington, Inc. on January 1, 2025. The following facts pertain to the lease agreement. 1. 2. 3. 4. 5. The lease term is 6 years, with equal annual rental payments of $7,652 at the beginning of each 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 $42,000, a book value to Flanigans of $37,000, and a useful life of 7 years. At the end of the lease term, Flanigans and Wellington expect there to be an unguaranteed residual value of $3,000. Flanigans wants to earn a return of 6% on the lease, and collectibility of the payments is probable. Wellington was unawai the implicit rate used in the lease by Flanigans and has an incremental borrowing rate of 8%.

lanigans Company leases a building to Wellington, Inc. on January 1, 2025. The following facts pertain to the lease agreement. 1. 2. 3. 4. 5. The lease term is 6 years, with equal annual rental payments of $7,652 at the beginning of each 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 $42,000, a book value to Flanigans of $37,000, and a useful life of 7 years. At the end of the lease term, Flanigans and Wellington expect there to be an unguaranteed residual value of $3,000. Flanigans wants to earn a return of 6% on the lease, and collectibility of the payments is probable. Wellington was unawai the implicit rate used in the lease by Flanigans and has an incremental borrowing rate of 8%.

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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Flanigans Company leases a building to Wellington, Inc. on January 1, 2025. The following facts pertain to the lease agreement. 1. 2. 3. 4. 5. The lease term is 6 years, with equal annual rental payments of $7,652 at the beginning of each 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 $42,000, a book value to Flanigans of $37,000, and a useful life of 7 years. At the end of the lease term, Flanigans and Wellington expect there to be an unguaranteed residual value of $3,000. Flanigans wants to earn a return of 6% on the lease, and collectibility of the payments is probable. Wellington was unaware of the implicit rate used in the lease by Flanigans and has an incremental borrowing rate of 8%.
Transcribed Image Text:Flanigans Company leases a building to Wellington, Inc. on January 1, 2025. The following facts pertain to the lease agreement. 1. 2. 3. 4. 5. The lease term is 6 years, with equal annual rental payments of $7,652 at the beginning of each 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 $42,000, a book value to Flanigans of $37,000, and a useful life of 7 years. At the end of the lease term, Flanigans and Wellington expect there to be an unguaranteed residual value of $3,000. Flanigans wants to earn a return of 6% on the lease, and collectibility of the payments is probable. Wellington was unaware of the implicit rate used in the lease by Flanigans and has an incremental borrowing rate of 8%.
How would Flanigans initially measure the lease receivable, and how would Wellington initially measure the lease liability and right-of- use asset? (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 receivable $ Present value of rental payments $ Lease liability/Right-of-use asset $ Flanigans Wellington
Transcribed Image Text:How would Flanigans initially measure the lease receivable, and how would Wellington initially measure the lease liability and right-of- use asset? (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 receivable $ Present value of rental payments $ Lease liability/Right-of-use asset $ Flanigans Wellington
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