On December 31, 2019, Teal Mountain Corporation signed a 5-year, non-cancelable lease for a machine. The terms of the lease call for Teal Mountain to make annual payments of $8,200 at the beginning of each year of the lease, starting December 31, 2019. The machine has an estimated useful life of 6 years and a $5,500 unguaranteed residual value. The machine reverts back to the lessor a the end of the lease term. Teal Mountain uses the straight-line method of depreciation for all of its plant assets. Teal Mountain's incremental borrowing rate is 12%, and the lessor's implicit rate is unknown. Click here to view factor tables.
On December 31, 2019, Teal Mountain Corporation signed a 5-year, non-cancelable lease for a machine. The terms of the lease call for Teal Mountain to make annual payments of $8,200 at the beginning of each year of the lease, starting December 31, 2019. The machine has an estimated useful life of 6 years and a $5,500 unguaranteed residual value. The machine reverts back to the lessor a the end of the lease term. Teal Mountain uses the straight-line method of depreciation for all of its plant assets. Teal Mountain's incremental borrowing rate is 12%, and the lessor's implicit rate is unknown. Click here to view factor tables.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On December 31, 2019, Teal Mountain Corporation signed a 5-year, non-cancelable lease for a machine. The terms of the lease called
for Teal Mountain to make annual payments of $8,200 at the beginning of each year of the lease, starting December 31, 2019. The
machine has an estimated useful life of 6 years and a $5.500 unguaranteed residual value. The machine reverts back to the lessor at
the end of the lease term. Teal Mountain uses the straight-line method of depreciation for all of its plant assets. Teal Mountain's
incremental borrowing rate is 12%, and the lessor's implicit rate is unknown.
Click here to view factor tables.
(a)
What type of lease is this?
This is a/an
lease.
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