On January 1, 2019. Eric, the lessee, and Betty, the lessor, signed a noncancelable lease agreement for Betty's equipment with a carrying amount of $60,000 and fair value of $75,000. The lease term is seven years with rental payments of $10,000 at the beginning of each year. Eric's incremental borrowing rate is 9%. The equipment is expected to have a residual value of $15,000 at the end of the lease, unguaranteed, and a useful life of 15 years. The collectability of the lease payments is probable for the lessor Betty. Instructions 1. Provide the journal entries required on the books of both Eric and Betty through December 31, 2020. 2. What if the residual value of $15,000 is guaranteed?
On January 1, 2019. Eric, the lessee, and Betty, the lessor, signed a noncancelable lease agreement for Betty's equipment with a carrying amount of $60,000 and fair value of $75,000. The lease term is seven years with rental payments of $10,000 at the beginning of each year. Eric's incremental borrowing rate is 9%. The equipment is expected to have a residual value of $15,000 at the end of the lease, unguaranteed, and a useful life of 15 years. The collectability of the lease payments is probable for the lessor Betty.
Instructions
1. Provide the
2. What if the residual value of $15,000 is guaranteed?
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