Bridgeport Leasing Company agrees to lease machinery to Indigo Corporation on January 1, 2017. 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 $502,000, and the fair value of the asset on January 1, 2017, is $739,000. |
|
|
3. |
At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $102,000. Indigo depreciates all of its equipment on a straight-line basis. |
|
|
4. |
The lease agreement requires equal annual rental payments, beginning on January 1, 2017. |
|
|
5. |
The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the amount of costs yet to be incurred by the lessor. |
|
|
6. |
Bridgeport desires a 11% rate of return on its investments. Indigo’s incremental borrowing rate is 12%, and the lessor’s implicit rate is unknown. |
(Assume the accounting period ends on December 31.)
Click here to view factor tables
Warning
|
|
|
|
|
|
|
|
|
|
|
|
|
|
