The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Pina Company, a lessee. Commencement date January 1, Annual lease payment due at the beginning of each year, beginning with January 1, $104,218 Residual value of equipment at end of lease term, guaranteed by the lessee $51,000 Expected residual value of equipment at end of lease term $46,000 Lease term 6 years Economic life of leased equipment 6 years Fair value of asset at January 1, $540,000 Lessor’s implicit rate 9 % Lessee’s incremental borrowing rate 9 % The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased equipment. (c) (c) Incorrect answer icon Your answer is incorrect. Suppose Pina received a lease incentive of $5,000 from Faldo Leasing to enter the lease. How would the initial measurement of the lease liability and right-of-use asset be affected? Right-of-use asset $enter a dollar amount Lease Liability $enter a dollar amount What if Pina prepaid rent of $5,000 to Faldo? Right-of-use asset $enter a dollar amount Lease Liability $enter a dollar amount
The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Pina Company, a lessee. Commencement date January 1, Annual lease payment due at the beginning of each year, beginning with January 1, $104,218 Residual value of equipment at end of lease term, guaranteed by the lessee $51,000 Expected residual value of equipment at end of lease term $46,000 Lease term 6 years Economic life of leased equipment 6 years Fair value of asset at January 1, $540,000 Lessor’s implicit rate 9 % Lessee’s incremental borrowing rate 9 % The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased equipment. (c) (c) Incorrect answer icon Your answer is incorrect. Suppose Pina received a lease incentive of $5,000 from Faldo Leasing to enter the lease. How would the initial measurement of the lease liability and right-of-use asset be affected? Right-of-use asset $enter a dollar amount Lease Liability $enter a dollar amount What if Pina prepaid rent of $5,000 to Faldo? Right-of-use asset $enter a dollar amount Lease Liability $enter a dollar amount
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Pina Company, a lessee.
| Commencement date | January 1, | ||
| Annual lease payment due at the beginning of each year, beginning with January 1, |
$104,218 | ||
| Residual value of equipment at end of lease term, guaranteed by the lessee |
$51,000 | ||
| Expected residual value of equipment at end of lease term | $46,000 | ||
| Lease term | 6 | years | |
| Economic life of leased equipment | 6 | years | |
| Fair value of asset at January 1, | $540,000 | ||
| Lessor’s implicit rate | 9 | % | |
| Lessee’s incremental borrowing rate | 9 | % |
The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased equipment.
(c)
(c)
Incorrect answer icon
Your answer is incorrect.
Suppose Pina received a lease incentive of $5,000 from Faldo Leasing to enter the lease. How would the initial measurement of the lease liability and right-of-use asset be affected?
What if Pina prepaid rent of $5,000 to Faldo?
| Right-of-use asset | $enter a dollar amount | |
|---|---|---|
| Lease Liability | $enter a dollar amount |
What if Pina prepaid rent of $5,000 to Faldo?
| Right-of-use asset | $enter a dollar amount | |
|---|---|---|
| Lease Liability | $enter a dollar amount |
Expert Solution
Step 1
Given:
| Commencement date | January 1, | ||
| Annual lease payment due at the beginning of each year, beginning with January 1, |
$104,218 | ||
| Residual value of equipment at end of lease term, guaranteed by the lessee |
$51,000 | ||
| Expected residual value of equipment at end of lease term | $46,000 | ||
| Lease term | 6 | years | |
| Economic life of leased equipment | 6 | years | |
| Fair value of asset at January 1, | $540,000 | ||
| Lessor’s implicit rate | 9 | % | |
| Lessee’s incremental borrowing rate | 9 | % |
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