Skysong Company manufactures a check-in kiosk with an estimated economic life of 12 years and leases it to Concord Airlines for a period of 10 years. The normal selling price of the equipment is $291,033, and its unguaranteed residual value at the end of the lease term is estimated to be $20,800. Concord will pay annual payments of $43,400 at the beginning of each year. Skysong incurred costs of $164,300 in manufacturing the equipment and $4,300 in sales commissions in closing the lease. Skysong has determined that the collectibility of the lease payments is probable and that the implicit interest rate is 11%, Concord Airlines has an incremental borrowing rate of 11%.
Skysong Company manufactures a check-in kiosk with an estimated economic life of 12 years and leases it to Concord Airlines for a period of 10 years. The normal selling price of the equipment is $291,033, and its unguaranteed residual value at the end of the lease term is estimated to be $20,800. Concord will pay annual payments of $43,400 at the beginning of each year. Skysong incurred costs of $164,300 in manufacturing the equipment and $4,300 in sales commissions in closing the lease. Skysong has determined that the collectibility of the lease payments is probable and that the implicit interest rate is 11%, Concord Airlines has an incremental borrowing rate of 11%.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Skysong Company manufactures a check-in kiosk with an estimated economic life of 12 years and leases it to Concord Airlines for a
period of 10 years. The normal selling price of the equipment is $291,033, and its unguaranteed residual value at the end of the
lease term is estimated to be $20,800. Concord will pay annual payments of $43.400 at the beginning of each year. Skysong
incurred costs of $164,300 in manufacturing the equipment and $4,300 in sales commissions in closing the lease. Skysong has
determined that the collectibility of the lease payments is probable and that the implicit interest rate is 11%. Concord Airlines has
an incremental borrowing rate of 11%.
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Discuss the nature of this lease in relation to the lessee.
n
U
This is a operating lease
Compute the amount of the initial lease liability. (Round present value factor calculations to 5 decimal places, eg 1.25124 and the
final answer to O decimal places eg. 58,971.)
The amount of the initial lease liability $
291161
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