Lease facts: Date of lease – 6/1/19 Term – 3 years (expires 6/1/22) Semi-annual lease payments of $100,000 every 6/1 and 12/1 Lessee’s incremental borrowing rate – 6% Lessor’s implicit rate of return – 5% (NOT known to lessee) Lessor’s cost of asset leased - $250,000 Guaranteed residual value - $70,000 (lessee believes fair value of the asset at the end of the lease will be greater than $70,000). Lessee and Lessor both have a December 31st Requirements: Assume the lease is treated as a finance lease: Determine the fair value of the lease from the lessor’s perspective Prepare the lessor’s amortization table for this lease Prepare all of the lessor’s required journal entries for 2019 and 2020
Lease facts: Date of lease – 6/1/19 Term – 3 years (expires 6/1/22) Semi-annual lease payments of $100,000 every 6/1 and 12/1 Lessee’s incremental borrowing rate – 6% Lessor’s implicit rate of return – 5% (NOT known to lessee) Lessor’s cost of asset leased - $250,000 Guaranteed residual value - $70,000 (lessee believes fair value of the asset at the end of the lease will be greater than $70,000). Lessee and Lessor both have a December 31st Requirements: Assume the lease is treated as a finance lease: Determine the fair value of the lease from the lessor’s perspective Prepare the lessor’s amortization table for this lease Prepare all of the lessor’s required journal entries for 2019 and 2020
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter20: Accounting For Leases
Section: Chapter Questions
Problem 6P: Sales-Type Lease with Unguaranteed Residual Value Lessor Company and Lessee Company enter into a...
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Question
Lease facts:
- Date of lease – 6/1/19
- Term – 3 years (expires 6/1/22)
- Semi-annual lease payments of $100,000 every 6/1 and 12/1
- Lessee’s incremental borrowing rate – 6%
- Lessor’s implicit
rate of return – 5% (NOT known to lessee) - Lessor’s cost of asset leased - $250,000
- Guaranteed residual value - $70,000 (lessee believes fair value of the asset at the end of the lease will be greater than $70,000).
- Lessee and Lessor both have a December 31st
Requirements:
Assume the lease is treated as a finance lease:
- Determine the fair value of the lease from the lessor’s perspective
- Prepare the lessor’s amortization table for this lease
- Prepare all of the lessor’s required
journal entries for 2019 and 2020
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