Homework Help is Here – Start Your Trial Now!
Business
Accounting
Riverbed Industries and Marin Inc. enter into an agreement that requires Marin Inc. to build three diesel-electric engines to Riverbed's specifications. Upon completion of the engines, Riverbed has agreed to lease them for a period of 10 years and to assume all costs and risks of ownership. The lease is non-cancelable, becomes effective on January 1, 2020, and requires annual rental payments of $421,012 each January 1, starting January 1, 2020. Riverbed's incremental borrowing rate is 8%. The implicit interest rate used by Marin and known to Riverbed is 7%. The total cost of building the three engines is $2,762,000. The economic life of the engines is estimated to be 10 years, with residual value set at zero. Riverbed depreciates similar equipment on a straight-line basis. At the end of the lease, Riverbed assumes title to the engines. Collectibility of the lease payments is probable. Click here to view factor tables.

Riverbed Industries and Marin Inc. enter into an agreement that requires Marin Inc. to build three diesel-electric engines to Riverbed's specifications. Upon completion of the engines, Riverbed has agreed to lease them for a period of 10 years and to assume all costs and risks of ownership. The lease is non-cancelable, becomes effective on January 1, 2020, and requires annual rental payments of $421,012 each January 1, starting January 1, 2020. Riverbed's incremental borrowing rate is 8%. The implicit interest rate used by Marin and known to Riverbed is 7%. The total cost of building the three engines is $2,762,000. The economic life of the engines is estimated to be 10 years, with residual value set at zero. Riverbed depreciates similar equipment on a straight-line basis. At the end of the lease, Riverbed assumes title to the engines. Collectibility of the lease payments is probable. Click here to view factor tables.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
Question
* options for questions are: finance lease, operating lease, and/or sales-type lease..
Riverbed Industries and Marin Inc. enter into an agreement that requires Marin Inc. to build three diesel-electric engines to Riverbed's specifications. Upon completion of the engines, Riverbed has agreed to lease them for a period of 10 years and to assume all costs and risks of ownership. The lease is non-cancelable, becomes effective on January 1, 2020, and requires annual rental payments of $421,012 each January 1, starting January 1, 2020. Riverbed's incremental borrowing rate is 8%. The implicit interest rate used by Marin and known to Riverbed is 7%. The total cost of building the three engines is $2,762,000. The economic life of the engines is estimated to be 10 years, with residual value set at zero. Riverbed depreciates similar equipment on a straight-line basis. At the end of the lease, Riverbed assumes title to the engines. Collectibility of the lease payments is probable. Click here to view factor tables. (a) Discuss the nature of this lease transaction from the viewpoints of both lessee and lessor. The lease should be treated as a by Riverbed Industries. The lease should be treated as a by Marin Inc.
Transcribed Image Text:Riverbed Industries and Marin Inc. enter into an agreement that requires Marin Inc. to build three diesel-electric engines to Riverbed's specifications. Upon completion of the engines, Riverbed has agreed to lease them for a period of 10 years and to assume all costs and risks of ownership. The lease is non-cancelable, becomes effective on January 1, 2020, and requires annual rental payments of $421,012 each January 1, starting January 1, 2020. Riverbed's incremental borrowing rate is 8%. The implicit interest rate used by Marin and known to Riverbed is 7%. The total cost of building the three engines is $2,762,000. The economic life of the engines is estimated to be 10 years, with residual value set at zero. Riverbed depreciates similar equipment on a straight-line basis. At the end of the lease, Riverbed assumes title to the engines. Collectibility of the lease payments is probable. Click here to view factor tables. (a) Discuss the nature of this lease transaction from the viewpoints of both lessee and lessor. The lease should be treated as a by Riverbed Industries. The lease should be treated as a by Marin Inc.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Lease accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS