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Sheridan Company leases a building to Skysong, Inc on January 1, 2020. The following facts pertain to the lease agreement. 1. The lease term is 5 years, with equal annual rental payments of $5,857 at the beginning of each year. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature. 2. 3. 4. 5. The building has a fair value of $ 29,000, a book value to Sheridan of $ 22,000, and a useful life of 6 years. At the end of the lease term, Sheridan and Skysong expect there to be an unguaranteed residual value of $5,500. Sheridan wants to earn a return of 8% on the lease, and collectibility of the payments is probable. Skysong was unaware of them implicit rate used in the lease by Sheridan and has an incremental borrowing rate of 9%.

Sheridan Company leases a building to Skysong, Inc on January 1, 2020. The following facts pertain to the lease agreement. 1. The lease term is 5 years, with equal annual rental payments of $5,857 at the beginning of each year. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature. 2. 3. 4. 5. The building has a fair value of $ 29,000, a book value to Sheridan of $ 22,000, and a useful life of 6 years. At the end of the lease term, Sheridan and Skysong expect there to be an unguaranteed residual value of $5,500. Sheridan wants to earn a return of 8% on the lease, and collectibility of the payments is probable. Skysong was unaware of them implicit rate used in the lease by Sheridan and has an incremental borrowing rate of 9%.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Sheridan Company leases a building to Skysong, Inc. on January 1, 2020. The following facts pertain to the lease agreement. The lease term is 5 years, with equal annual rental payments of $5,857 at the beginning of each year. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature. 1. 2. 3. 4. 5. The building has a fair value of $ 29,000, a book value to Sheridan of $ 22,000, and a useful life of 6 years. At the end of the lease term, Sheridan and Skysong expect there to be an unguaranteed residual value of $ 5,500. Sheridan wants to earn a return of 8% on the lease, and collectibility of the payments is probable. Skysong was unaware of the implicit rate used in the lease by Sheridan and has an incremental borrowing rate of 9%. Click here to view factor tables. How would Sheridan (lessor) and Skysong (lessee) classify this lease? Sheridan would classify the lease as a sales-type ✓lease.
Transcribed Image Text:Sheridan Company leases a building to Skysong, Inc. on January 1, 2020. The following facts pertain to the lease agreement. The lease term is 5 years, with equal annual rental payments of $5,857 at the beginning of each year. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature. 1. 2. 3. 4. 5. The building has a fair value of $ 29,000, a book value to Sheridan of $ 22,000, and a useful life of 6 years. At the end of the lease term, Sheridan and Skysong expect there to be an unguaranteed residual value of $ 5,500. Sheridan wants to earn a return of 8% on the lease, and collectibility of the payments is probable. Skysong was unaware of the implicit rate used in the lease by Sheridan and has an incremental borrowing rate of 9%. Click here to view factor tables. How would Sheridan (lessor) and Skysong (lessee) classify this lease? Sheridan would classify the lease as a sales-type ✓lease.
How would Sheridan initially measure the lease receivable, and how would Skysong initially measure the lease liability and right-of- use asset? (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to O decimal places, eg. 5,275.) Lease receivable Present value of lease pay Lease Liability/Right-of-Use Asset $ Sheridan 29,000 29242 Skysong 28639
Transcribed Image Text:How would Sheridan initially measure the lease receivable, and how would Skysong initially measure the lease liability and right-of- use asset? (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to O decimal places, eg. 5,275.) Lease receivable Present value of lease pay Lease Liability/Right-of-Use Asset $ Sheridan 29,000 29242 Skysong 28639
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