Problem #3 Sunset Company, as lessee, enters into a lease agreement on January 1, 2020, to lease equipment. The following data are relevant to the lease agreement. The term of the noncancellable lease is four years, with no renewal option. Payments of $18,500 are due on January 1, of each year. The fair value of the equipment on January 1, 2020 is $75,000. The equipment has an estimated economic life of five years, and an unguarenteed residual value of $3,000. The equipment reverts back to the lessor at the termination of the lease and is expected to have use to the lessor. The lessee is aware that the lessor used an implicit rate of 3%. (Present Value & Future Value Tables are provided on pages 3 and 4) Instructions: 1. Indicate the type of lease Sunset has entered into and why (include a list of the Capital Lease Criteria)
Problem #3 Sunset Company, as lessee, enters into a lease agreement on January 1, 2020, to lease equipment. The following data are relevant to the lease agreement. The term of the noncancellable lease is four years, with no renewal option. Payments of $18,500 are due on January 1, of each year. The fair value of the equipment on January 1, 2020 is $75,000. The equipment has an estimated economic life of five years, and an unguarenteed residual value of $3,000. The equipment reverts back to the lessor at the termination of the lease and is expected to have use to the lessor. The lessee is aware that the lessor used an implicit rate of 3%. (Present Value & Future Value Tables are provided on pages 3 and 4) Instructions: 1. Indicate the type of lease Sunset has entered into and why (include a list of the Capital Lease Criteria)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Problem #3
Sunset Company, as lessee, enters into a lease agreement on January 1, 2020, to lease equipment.
The following data are relevant to the lease agreement.
The term of the noncancellable lease is four years, with no renewal option. Payments of
$18,500 are due on January 1, of each year.
The fair value of the equipment on January 1, 2020 is $75,000. The equipment has an
estimated economic life of five years, and an unguarenteed residual value of $3,000.
The equipment reverts back to the lessor at the termination of the lease and is expected to
have use to the lessor.
The lessee is aware that the lessor used an implicit rate of 3%.
(Present Value & Future Value Tables are provided on pages 3 and 4)
Instructions:
1. Indicate the type of lease Sunset has entered into and why (include a list of the Capital
Lease Criteria)
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