Question: Langlois Services Inc is using the contract based approach to account
Langlois Services Inc. is using the contract-based approach to account for a lease of a truck. The lease includes a residual value guarantee at the end of the term of the lease of $16,000. Langlois estimates that the likelihood for the residual value of $16,000 has a 50% certainty. Langlois feels that there is a 30% chance that the residual value will be $12,000 and a 20% chance that it will be $10,000. Calculate the probability weighted value of the residual guarantee that needs to be included in the lease obligation recorded by Langlois when the lease is signed.
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