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On December 31, 2016, Escapee Company leased machinery from Terminator Corporation for an agreed-upon lease term of 3 years. Escapee agreed to make annual lease payments of $17,000, beginning on December 31, 2016. The expected residual value of the

On December 31, 2016, Escapee Company leased machinery from Terminator Corporation for an agreed-upon lease term of 3 years. Escapee agreed to make annual lease payments of $17,000, beginning on December 31, 2016. The expected residual value of the

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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On December 31, 2016, Escapee Company leased machinery from Terminator Corporation for an agreed-upon lease term of 3 years. Escapee agreed to make annual lease payments of $17,000, beginning on December 31, 2016. The expected residual value of the machinery at the end of the lease term is $9,000, though Escapee does not guarantee any residual value to Terminator. A. What amount will Escapee record as its lease liability on December 31, 2016, if its incremental borrowing rate is 6% and the implicit rate of the lease is unknown? B. What would the lease liability be if Escapee guaranteed the residual value at $9,000 when the residual value is expected to be $5,000 at the end of the lease?
Transcribed Image Text:On December 31, 2016, Escapee Company leased machinery from Terminator Corporation for an agreed-upon lease term of 3 years. Escapee agreed to make annual lease payments of $17,000, beginning on December 31, 2016. The expected residual value of the machinery at the end of the lease term is $9,000, though Escapee does not guarantee any residual value to Terminator. A. What amount will Escapee record as its lease liability on December 31, 2016, if its incremental borrowing rate is 6% and the implicit rate of the lease is unknown? B. What would the lease liability be if Escapee guaranteed the residual value at $9,000 when the residual value is expected to be $5,000 at the end of the lease?
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