On January 1, James Industries leased equipment to a customer for a six-year period, at which time possession of theleased asset will revert back to James. The equipment cost James $760,000 and has an expected useful life of eight years.Its normal sales price is $760,000. The residual value after six years is $100,000. Lease payments are due on December 31of each year, beginning with the first payment at the end of the first year. The interest rate is 8%.Calculate the amount of the annual lease payments.Chart to Use:Table or calculator function:Amount to be recovered (fair value)Present value of the residual valueTable or calculator function:SAmount to recovered through periodic lease paymentsLease PaymentAmount of each annual lease payment.Residual Valuen=i=n=i=Present valueLease Payments

Equipment Cost = $760,000Fair value = $760,000Lease period = 6 YearsResidual Value after 6 years =…

Answered: On January 1, James Industries leased…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Gordon Inc., a private company that follows ASPE, entered into a lease agreement with Canada Leasing Corporation to lease a warehouse for six years. Annual lease payments are $21,000, payable at the beginning of each lease year. Gordon Inc. signed the lease agreement on January 1, 2021, and made the first payment on that date. At the end of the lease, the machine will revert back to Canada Leasing Corporation. The normal useful life of the warehouse is 10 years. At the time of the lease, the warehouse could be purchased for $108,000. Gordon does not know the implicit rate of the lease; Gordon's incremental borrowing rate is 10%. Gordon uses straight-line depreciation for this type of asset. Required: Using the three criteria under ASPE, prove whether this is an operating or capital lease. Prepare a lease amortization schedule for the lease. Round all amounts to the nearest dollar. Prepare the journal entries for 2021 and 2022 for Gordon Inc. Round amounts to the nearest…
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Pharoah Corporation manufactures specialty equipment with an estimated economic life of 12 years and leases it to Provincial Airlines Corp. for a period of 10 years. Both Pharoah and Provincial Airlines follow ASPE. The equipment's normal selling price is $210,482 and its unguaranteed residual value at the end of the lease term is estimated to be $13,000. Provincial Airlines will make annual payments of $22,600 at the beginning of each year and pay for all maintenance and insurance. Pharoah incurred costs of $105,000 in manufacturing the equipment and $7,000 in negotiating and closing the lease. Pharoah has determined that the collectibility of the lease payments is reasonably predictable, that no additional costs will be incurred, and that the implicit interest rate is 8%. Provincial Airlines Corp. has an incremental borrowing rate of 8%. Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE. (b) What classification…
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