Pharoah Leasing Company agrees to lease equipment to Novak Corporation on January 1, 2025. The following information relates to the lease agreement. 1. 2. 3. 4. 5. 6. (Assume the accounting period ends on December 31.) The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. The cost of the machinery is $495,000, and the fair value of the asset on January 1, 2025, is $704,000. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $45,000. Novak estimates that the expected residual value at the end of the lease term will be $45,000. Novak amortizes all of its leased equipment on a straight-line basis. The lease agreement requires equal annual rental payments, beginning on January 1, 2025. The collectibility of the lease payments is probable. Pharoah desires a 9% rate of return on its investments. Novak's incremental borrowing rate is 10%, and the lessor's implicit rate is unknown. Click here to view factor tables. (a) Your answer is correct. Discuss the nature of this lease for both the lessee and the lessor. This is a (b) This is a finance lease sales-type lease eTextbook and Media List of Accounts ✓for Novak. V for Pharoah. * Your answer is incorrect. Calculate the amount of the annual rental payment required. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to O decimal places e.g. 58,972.) Annual rental payment $ Attempts: 1 of 5 used 134,834
Pharoah Leasing Company agrees to lease equipment to Novak Corporation on January 1, 2025. The following information relates to the lease agreement. 1. 2. 3. 4. 5. 6. (Assume the accounting period ends on December 31.) The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. The cost of the machinery is $495,000, and the fair value of the asset on January 1, 2025, is $704,000. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $45,000. Novak estimates that the expected residual value at the end of the lease term will be $45,000. Novak amortizes all of its leased equipment on a straight-line basis. The lease agreement requires equal annual rental payments, beginning on January 1, 2025. The collectibility of the lease payments is probable. Pharoah desires a 9% rate of return on its investments. Novak's incremental borrowing rate is 10%, and the lessor's implicit rate is unknown. Click here to view factor tables. (a) Your answer is correct. Discuss the nature of this lease for both the lessee and the lessor. This is a (b) This is a finance lease sales-type lease eTextbook and Media List of Accounts ✓for Novak. V for Pharoah. * Your answer is incorrect. Calculate the amount of the annual rental payment required. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to O decimal places e.g. 58,972.) Annual rental payment $ Attempts: 1 of 5 used 134,834
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
211.
Subject : - Accounting
Transcribed Image Text:Pharoah Leasing Company agrees to lease equipment to Novak Corporation on January 1, 2025. The following information relates to
the lease agreement.
1.
2.
3.
4.
5.
6.
(Assume the accounting period ends on December 31.)
The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years.
The cost of the machinery is $495,000, and the fair value of the asset on January 1, 2025, is $704,000.
At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $45,000. Novak estimates
that the expected residual value at the end of the lease term will be $45,000. Novak amortizes all of its leased equipment on a
straight-line basis.
The lease agreement requires equal annual rental payments, beginning on January 1, 2025.
The collectibility of the lease payments is probable.
Pharoah desires a 9% rate of return on its investments. Novak's incremental borrowing rate is 10%, and the lessor's implicit
rate is unknown.
Click here to view factor tables.
(a)
Your answer is correct.
Discuss the nature of this lease for both the lessee and the lessor.
This is a finance lease
(b)
This is a sales-type lease
eTextbook and Media
List of Accounts
for Novak.
* Your answer is incorrect.
Annual rental payment $
for Pharoah.
Calculate the amount of the annual rental payment required. (Round present value factor calculations to 5 decimal places, e.g.
1.25124 and the final answer to O decimal places e.g. 58,972.)
Attempts: 1 of 5 used
134,834
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