## Lease Accounting Problem**Scenario:**Wildhorse Company manufactures a check-in kiosk with an estimated economic life of 10 years and leases it to Sheffield Chicken for a period of 9 years. The normal selling price of the equipment is $172,124, and its unguaranteed residual value at the end of the lease term is estimated to be $26,200. Sheffield will pay annual payments of $20,800 at the beginning of each year. Wildhorse incurred costs of $144,100 in manufacturing the equipment and $2,400 in sales commissions in closing the lease. Wildhorse has determined that the collectibility of the lease payments is probable and that the implicit interest rate is 5%. Sheffield Chicken has an incremental borrowing rate of 5%. The lessor’s implicit rate is unknown to the lessee.**Instructions:**Click [here](#) to view factor tables.### Question (a)**Discuss the nature of this lease in relation to the lessee.**This is a - [ ] sales-type lease - [ ] operating lease - [ ] direct financing leasewith bargain purchase option.**Compute the amount of the initial lease liability.** (Round present value factor calculations to 5 decimal places, e.g., 1.25124 and the final answer to 0 decimal places e.g., 58,971.)The amount of the initial lease liability $____________**Save for Later:**- Last saved 4 hours ago.Saved work will be auto-submitted on the due date. Auto submission can take up to 10 minutes.Attempts: **0 of 1 used** [Submit Answer](#)

a. The lease will be called as a "Sales Type Lease". It is so because the lease term of the asset is…

Wildhorse Company manufactures a check-in kiosk with an estimated economic life of 10 years and leases it to Sheffield Chicken for a period of 9 years. The normal selling price of the equipment is $172,124, and its unguaranteed residual value at the end of the lease term is estimated to be $26,200. Sheffield will pay annual payments of $20,800 at the beginning of each year. Wildhorse incurred costs of $141,100 in manufacturing the equipment and $2,400 in sales commissions in closing the lease. Wildhorse has determined that the collectibility of the lease payments is probable and that the implicit interest rate is 5%. Sheffield Chicken has ar incremental borrowing rate of 5%. The lessor's implicit rate is unknown to the lessee. Click here to view factor tables. (a) Discuss the nature of this lease in relation to the lessee. This is a sales-type lease Compute the amount of the initial lease liability. (Round present value factor calculations to 5 decimal places, eg. 1.25124 and the final answer to O decimal places eg. 58,971.) The amount of the initial lease liability Save for Later Last saved 4 hours ago. Attempts: 0 of 1 used Submit Answer Saved work will he auto-suhmitted on the due date Auto-

Wildhorse Company manufactures a check-in kiosk with an estimated economic life of 10 years and leases it to Sheffield Chicken for a period of 9 years. The normal selling price of the equipment is $172,124, and its unguaranteed residual value at the end of the lease term is estimated to be $26,200. Sheffield will pay annual payments of $20,800 at the beginning of each year. Wildhorse incurred costs of $141,100 in manufacturing the equipment and $2,400 in sales commissions in closing the lease. Wildhorse has determined that the collectibility of the lease payments is probable and that the implicit interest rate is 5%. Sheffield Chicken has ar incremental borrowing rate of 5%. The lessor's implicit rate is unknown to the lessee. Click here to view factor tables. (a) Discuss the nature of this lease in relation to the lessee. This is a sales-type lease Compute the amount of the initial lease liability. (Round present value factor calculations to 5 decimal places, eg. 1.25124 and the final answer to O decimal places eg. 58,971.) The amount of the initial lease liability Save for Later Last saved 4 hours ago. Attempts: 0 of 1 used Submit Answer Saved work will he auto-suhmitted on the due date Auto-

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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