Pronghorn Corporation, a lessee, enters into a non-cancellable lease contract with LOR Limited, a lessor, on September 1, 2024. Assume that the signing and delivery of the lease happened on the same day. The lease terms and conditions are set out below: Leased asset Economic life of equipment Lease term Lease payment per year, payable in advance Renewal option Expected value of asset (not guaranteed) -August 31, 2028 -August 31, 2030 Title to leased equipment Rate implicit in the lease Lessee's incremental borrowing rate Fair value of leased asset, September 1, 2024 Manufacturing equipment 7 years September 1, 2024, to August 31, 2028 $4,100 Renewable for additional two years at the option of lessee at $3,600 per year $5,100 $1,000 Retained by lessor 12% 12% $20,400
Pronghorn Corporation, a lessee, enters into a non-cancellable lease contract with LOR Limited, a lessor, on September 1, 2024. Assume that the signing and delivery of the lease happened on the same day. The lease terms and conditions are set out below: Leased asset Economic life of equipment Lease term Lease payment per year, payable in advance Renewal option Expected value of asset (not guaranteed) -August 31, 2028 -August 31, 2030 Title to leased equipment Rate implicit in the lease Lessee's incremental borrowing rate Fair value of leased asset, September 1, 2024 Manufacturing equipment 7 years September 1, 2024, to August 31, 2028 $4,100 Renewable for additional two years at the option of lessee at $3,600 per year $5,100 $1,000 Retained by lessor 12% 12% $20,400
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Pronghorn Corporation, a lessee, enters into a non-cancellable lease contract with LOR Limited, a lessor, on September 1, 2024. Assume that the signing and delivery of the lease happened on the same day. The lease terms and conditions are set out below:
Leased asset
Economic life of equipment
Lease term
Lease payment per year, payable in advance
Renewal option
Expected value of asset (not guaranteed)
-August 31, 2028
-August 31, 2030
Title to leased equipment
Rate implicit in the lease
Lessee's incremental borrowing rate
Fair value of leased asset, September 1, 2024
Manufacturing equipment
7 years
September 1, 2024, to August 31, 2028
$4,100
Renewable for additional two years at the option of lessee at $3,600 per year
$5,100
$1,000
Retained by lessor
12%
12%
$20,400
Transcribed Image Text:Lessee's expectations:
- Most likely lease term (option will be taken to renew lease for additional two years)
Lessor's expectations:
-Most likely lease term
- Probability-weighted expected value of residual at end of lease term
September 1, 2024
December 31, 2024
December 31, 2024
Right-of-Use Asset
Lease Liability
Cash
Depreciation Expense
Accumulated Depreciation - Equipment
(To record depreciation expense)
Interest Expense
Lease Liability
(To record interest expense)
Lease will expire on August 31, 2030, after renewal; lease term is six years
Lessee will renew the lease for two years on August 31, 2028; a six-year lease term
$1,000
18711
14611
2914
492
DONO
4100
2914
492
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