Splish Company manufactures a check-in kiosk with an estimated economic life of 12 years and leases it to Blossom Airlines for a period of 10 years. The normal selling prick of the equipment is $262,235, and its unguaranteed residual value at the end of the lease term is estimated to be $21,000. Blossom will pay annual payments of $37,600 at the beginning of each year. Splish incurred costs of $184,300 in manufacturing the equipment and $3,800 in sales commissions in closing the lease. Splish has determined that the collectibility of the lease payments is probable and that the implicit interest rate is 10%. Blossom Airlines has an incremental borrowing rate of 10%.
Splish Company manufactures a check-in kiosk with an estimated economic life of 12 years and leases it to Blossom Airlines for a period of 10 years. The normal selling prick of the equipment is $262,235, and its unguaranteed residual value at the end of the lease term is estimated to be $21,000. Blossom will pay annual payments of $37,600 at the beginning of each year. Splish incurred costs of $184,300 in manufacturing the equipment and $3,800 in sales commissions in closing the lease. Splish has determined that the collectibility of the lease payments is probable and that the implicit interest rate is 10%. Blossom Airlines has an incremental borrowing rate of 10%.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:a. Discuss the nature of this lease in relation to the lessee, and compute the amount of the initial lease liability.
b. Prepare a 10-year lease amortization schedule.
c. Prepare all of the lessee's journal entries for the first year. Assume straight-line depreciation.
Transcribed Image Text:Splish Company manufactures a check-in kiosk with an estimated economic life of 12 years and leases it to Blossom Airlines for a
period of 10 years. The normal selling prick of the equipment is $262,235, and its unguaranteed residual value at the end of the lease
term is estimated to be $21,000. Blossom will pay annual payments of $37,600 at the beginning of each year. Splish incurred costs of
$184,300 in manufacturing the equipment and $3,800 in sales commissions in closing the lease. Splish has determined that the
collectibility of the lease payments is probable and that the implicit interest rate is 10%. Blossom Airlines has an incremental
borrowing rate of 10%.
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