The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Splish Company, a lessee.
The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Splish Company, a lessee.
Financial Accounting: The Impact on Decision Makers
10th Edition
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Gary A. Porter, Curtis L. Norton
Chapter10: Long-term Liabilities
Section: Chapter Questions
Problem 10.5P
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The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Splish Company, a lessee.
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.
Click here to view factor tables.
Commencement date | January 1, | ||
Annual lease payment due at the beginning of each year, beginning with January 1, |
$119,127 | ||
Residual value of equipment at end of lease term, guaranteed by the lessee |
$54,000 | ||
Expected residual value of equipment at end of lease term | $49,000 | ||
Lease term | 6 | years | |
Economic life of leased equipment | 6 | years | |
Fair value of asset at January 1, | $659,000 | ||
Lessor’s implicit rate | 6 | % | |
Lessee’s incremental borrowing rate | 6 | % |
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.
Click here to view factor tables.
Suppose Splish 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 Splish prepaid rent of $5,000 to Faldo?
Right-of-use asset | $enter a dollar amount | |
---|---|---|
Lease Liability | $enter a dollar amount |
What if Splish prepaid rent of $5,000 to Faldo?
Right-of-use asset | $enter a dollar amount | |
---|---|---|
Lease Liability | $enter a dollar amount |
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