On December 31, 20X1, Lexington Corporation signed a noncancelable three-year lease for a machine whose fair value is $200,000. The lease calls for annual payments of $50,000 per year due at the end of each of the next three years. The leased machine’s expected economic life is six years. No cash changed hands because the first payment was not due until December 31, 20X2. Lexington’s incremental borrowing rate is 12%. Lexington follows US GAAP and use the straight-line depreciation method for its fixed assets.
On December 31, 20X1, Lexington Corporation signed a noncancelable three-year lease for a machine whose fair value is $200,000. The lease calls for annual payments of $50,000 per year due at the end of each of the next three years. The leased machine’s expected economic life is six years. No cash changed hands because the first payment was not due until December 31, 20X2. Lexington’s incremental borrowing rate is 12%. Lexington follows US GAAP and use the
5. Lexington estimates that 20X2 operating
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