Sunland Leasing Company agrees to lease equipment to Coronado Corporation on January 1, 2020. The following information relates to the lease agreement. 1. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. 2. The cost of the machinery is $489,000, and the fair value of the asset on January 1, 2020, is $699,000. 3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $60,000. Coronado estimates that the expected residual value at the end of the lease term will be 60,000. Coronado amortizes all of its leased equipment on a straight-line basis. 4. The lease agreement requires equal annual rental payments, beginning on January 1, 2020. 5. The collectibility of the lease payments is probable. 6. Sunland desires a 9% rate of return on its investments. Coronado’s incremental borrow (a) Discuss the nature of this lease for both the lessee and the lessor. This is a for Coronado. This is a for Sunland.
Sunland Leasing Company agrees to lease equipment to Coronado Corporation on January 1, 2020. The following information relates to the lease agreement. 1. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. 2. The cost of the machinery is $489,000, and the fair value of the asset on January 1, 2020, is $699,000. 3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $60,000. Coronado estimates that the expected residual value at the end of the lease term will be 60,000. Coronado amortizes all of its leased equipment on a straight-line basis. 4. The lease agreement requires equal annual rental payments, beginning on January 1, 2020. 5. The collectibility of the lease payments is probable. 6. Sunland desires a 9% rate of return on its investments. Coronado’s incremental borrow (a) Discuss the nature of this lease for both the lessee and the lessor. This is a for Coronado. This is a for Sunland.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Sunland Leasing Company agrees to lease equipment to Coronado Corporation on January 1, 2020. The following information relates to the lease agreement.
| 1. | The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. | |
| 2. | The cost of the machinery is $489,000, and the fair value of the asset on January 1, 2020, is $699,000. | |
| 3. | At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $60,000. Coronado estimates that the expected residual value at the end of the lease term will be 60,000. Coronado amortizes all of its leased equipment on a straight-line basis. | |
| 4. | The lease agreement requires equal annual rental payments, beginning on January 1, 2020. | |
| 5. | The collectibility of the lease payments is probable. | |
| 6. | Sunland desires a 9% |
(a)
Discuss the nature of this lease for both the lessee and the lessor.
This is a for Coronado.
This is a for Sunland.
This is a for Coronado.
This is a for Sunland.
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The parts of this question must be completed in order. This part will be available when you complete the part above.(d)
The parts of this question must be completed in order. This part will be available when you complete the part above.(e)
The parts of this question must be completed in order. This part will be available when you complete the part above.(f)
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