Reporting Operating Lease-Lessee Renewable Co. uses leasing as a secondary means of selling its products. The company contracted with Green Corporation to lease a machine with an economic life of 12 years to be used by G Corporation in its operations. The fair value of the asset at the inception of the lease was $80,000; it cost Renewable Co. $72,000 and is carried as equipment at that value. Payments of $8,985 be made by Green Corporation at the beginning of each of the eight years of the lease. Renewable Co.'s implicit interest rate is 6% per year, which is not known by Green Corporation. Green Corporation's incremental borrowing rate is 7%. Renewable Co. estimates the residual value of the underlying asset to be $33,243 at the end of the lease term. The residual value is not guarant y Green Corporation. Renewable Co. will depreciate the equipment on a straight-line basis (assume no salvage value). a. How would Green Corporation classify the lease? . What balances (account titles, amounts) appear on Green's balance sheet at the end of the first year, related to the lease? Note: Round your final answers to the nearest whole dollar. Balance Sheet End of Year One Assets Noncurrent Assets Liabilities Current liabilities Noncurrent liabilities + $ Expenses $ $ 0 0 0 What balances (account titles, amounts) appear on Green's income statement for the first year, related to the lease? Income Statement Year One 0
Reporting Operating Lease-Lessee Renewable Co. uses leasing as a secondary means of selling its products. The company contracted with Green Corporation to lease a machine with an economic life of 12 years to be used by G Corporation in its operations. The fair value of the asset at the inception of the lease was $80,000; it cost Renewable Co. $72,000 and is carried as equipment at that value. Payments of $8,985 be made by Green Corporation at the beginning of each of the eight years of the lease. Renewable Co.'s implicit interest rate is 6% per year, which is not known by Green Corporation. Green Corporation's incremental borrowing rate is 7%. Renewable Co. estimates the residual value of the underlying asset to be $33,243 at the end of the lease term. The residual value is not guarant y Green Corporation. Renewable Co. will depreciate the equipment on a straight-line basis (assume no salvage value). a. How would Green Corporation classify the lease? . What balances (account titles, amounts) appear on Green's balance sheet at the end of the first year, related to the lease? Note: Round your final answers to the nearest whole dollar. Balance Sheet End of Year One Assets Noncurrent Assets Liabilities Current liabilities Noncurrent liabilities + $ Expenses $ $ 0 0 0 What balances (account titles, amounts) appear on Green's income statement for the first year, related to the lease? Income Statement Year One 0
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Reporting Operating Lease-Lessee
Renewable Co. uses leasing as a secondary means of selling its products. The company contracted with Green Corporation to lease a machine with an economic life of 12 years to be used by Green
Corporation in its operations. The fair value of the asset at the inception of the lease was $80,000; it cost Renewable Co. $72,000 and is carried as equipment at that value. Payments of $8,985 are to
be made by Green Corporation at the beginning of each of the eight years of the lease. Renewable Co.'s implicit interest rate is 6% per year, which is not known by Green Corporation. Green
Corporation's incremental borrowing rate is 7%. Renewable Co. estimates the residual value of the underlying asset to be $33,243 at the end of the lease term. The residual value is not guaranteed
by Green Corporation, Renewable Co. will depreciate the equipment on a straight-line basis (assume no salvage value).
a. How would Green Corporation classify the lease?
b. What balances (account titles, amounts) appear on Green's balance sheet at the end of the first year, related to the lease?
Note: Round your final answers to the nearest whole dollar.
Balance Sheet
End of Year One
Assets
Noncurrent Assets
Liabilities
Current liabilities
Noncurrent liabilities
+ $
Expenses
0
c. What balances (account titles, amounts) appear on Green's income statement for the first year, related to the lease?
Income Statement
Year One
0
0
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