sume that ADB Leasing Corp. and WXY Inc. sign a lease contract effective on January 1, 2019 where ADB Leasing leases to WXY Inc. a bulldozer. The terms and provisions of the lease contract and other pertinent date are as follows: • The term of the lease is five years. The lease agreement is non-cancelable, requiring equal rental payments of P20,711.11 at the beginning of each year (annuity-due basis). • The bulldozer has a fair value at the commencement of the lease of P100,000, an estimated economic life of five years, and a guaranteed residual value of P5,000. (WXY expects that it is probable that the expected value of the residual value at the end of the lease will be greater than the guaranteed amount of P5,000.) • The lease contains no renewal options. The bulldozer reverts to ADB Leasing at the termination of the lease. • WXY's incremental borrowing rate is 5 percent per year.
PROBLEM 3C
Assume that ADB Leasing Corp. and WXY Inc. sign a lease contract effective on January 1, 2019
where ADB Leasing leases to WXY Inc. a bulldozer. The terms and provisions of the lease contract and
other pertinent date are as follows:
• The term of the lease is five years. The lease agreement is non-cancelable, requiring equal rental
payments of P20,711.11 at the beginning of each year (annuity-due basis).
• The bulldozer has a fair value at the commencement of the lease of P100,000, an estimated
economic life of five years, and a guaranteed residual value of P5,000. (WXY expects that
it is probable that the expected value of the residual value at the end of the lease will be greater
than the guaranteed amount of P5,000.)
• The lease contains no renewal options. The bulldozer reverts to ADB Leasing at the termination
of the lease.
• WXY's incremental borrowing rate is 5 percent per year.
• WXY
• ADB Leasing sets the annual rental rate to earn a
ADB is aware of this rate.
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