On January 1, 2025, Carla Vista Company leased equipment to Sandhill Corporation. The following information pertains to this lease. The term of the non-cancelable lease is 6 years. At the end of the lease term, Sandhill has the option to purchase the equipment for $2,000, while the expected residual value at the end of the lease is $5,000. Equal rental payments are due on January 1 of each year, beginning in 2025. The fair value of the equipment on January 1, 2025, is $125,000, and its cost is $90,000. The equipment has an economic life of 8 years. Sandhill depreciates all of its equipment on a straight-line basis. Carla Vista set the annual rental to ensure a 6% rate of return. Sandhill's incremental borrowing rate is 8%, and the implicit rate of the lessor is unknown. Collectibility of lease payments by the lessor is probable. 1. 2. 3. 4. 5. 6. Both the lessor and the lessee's accounting periods end on December 31.
On January 1, 2025, Carla Vista Company leased equipment to Sandhill Corporation. The following information pertains to this lease. The term of the non-cancelable lease is 6 years. At the end of the lease term, Sandhill has the option to purchase the equipment for $2,000, while the expected residual value at the end of the lease is $5,000. Equal rental payments are due on January 1 of each year, beginning in 2025. The fair value of the equipment on January 1, 2025, is $125,000, and its cost is $90,000. The equipment has an economic life of 8 years. Sandhill depreciates all of its equipment on a straight-line basis. Carla Vista set the annual rental to ensure a 6% rate of return. Sandhill's incremental borrowing rate is 8%, and the implicit rate of the lessor is unknown. Collectibility of lease payments by the lessor is probable. 1. 2. 3. 4. 5. 6. Both the lessor and the lessee's accounting periods end on December 31.
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter20: Accounting For Leases
Section: Chapter Questions
Problem 1E: Determining Type of Lease and Subsequent Accounting On January 1, 2019, Caswell Company signs a...
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