On January 1, 2020, Blossom Company leased equipment to Flynn Corporation. The following information pertains to this lease. 1. The term of the non-cancelable lease is 6 years. At the end of the lease term, Flynn has the option to purchase the equipment for $3,000, while the expected residual value at the end of the lease is $7,000. 2. Equal rental payments are due on January 1 of each year, beginning in 2020. 3. The fair value of the equipment on January 1, 2020, is $140,000, and its cost is $90,000. 4. The equipment has an economic life of 8 years. Flynn depreciates all of its equipment on a straight-line basis. 5. Blossom set the annual rental to ensure a 7% rate of return. Flynn’s incremental borrowing rate is 8%, and the implicit rate of the lessor is unknown. 6. Collectibility of lease payments by the lessor is probable. Both the lessor and the lessee’s accounting periods ending on December 31. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Collapse question part (a) Discuss the nature of this lease to Blossom and Flynn. The nature of this lease for Blossom is a sales-type lease. The nature of this lease for Flynn is a finance lease. Collapse question part (b) Calculate the amount of the annual rental payment. (Round answer to 0 decimal places, e.g. 5,275.) Annual rental payment $
On January 1, 2020, Blossom Company leased equipment to Flynn Corporation. The following information pertains to this lease.
1. The term of the non-cancelable lease is 6 years. At the end of the lease term, Flynn has the option to purchase the equipment for $3,000, while the expected residual value at the end of the lease is $7,000.
2. Equal rental payments are due on January 1 of each year, beginning in 2020.
3. The fair value of the equipment on January 1, 2020, is $140,000, and its cost is $90,000.
4. The equipment has an economic life of 8 years. Flynn
5. Blossom set the annual rental to ensure a 7%
6. Collectibility of lease payments by the lessor is probable.
Both the lessor and the lessee’s accounting periods ending on December 31.
Click here to view factor tables.
(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
Collapse question part
(a)
Discuss the nature of this lease to Blossom and Flynn.
The nature of this lease for Blossom is a
sales-type
lease.
The nature of this lease for Flynn is a
finance
lease.
Collapse question part
(b)
Calculate the amount of the annual rental payment. (Round answer to 0 decimal places, e.g. 5,275.)
Annual rental payment $
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