John Deer. is a manufacturer of truck trailers. On April 1, 2020, John Deer. leases ten trailers to Rigid Company under a six-year noncancelable lease agreement. The following information about the lease and the trailers is provided: 1. Equal annual payments that are due starting on April 1, 2020 provide John Deer. with an 8% return on net investment, unknown to Rigid Company. 2. There is a guaranteed residual value of $5,000 for each trailer, and based on past leases, Rigid Co is expected to pay approximately $2,000 per trailer under this agreement. 3. The fair value of each trailer is $65,000. The cost of each trailer to John Deer. is $45,000. Each trailer has an expected useful life of nine years. 4. Rigid’s borrowing rate is 11% Instructions 

(a) Calculate the annual lease payment. (Round to nearest dollar.) 

(b) Prepare the journal entries for both the lessee and lessor for 2020 to record the lease agreement and the year-end entries. Round all amounts to the nearest dollar. SHOW YOUR WORK.

Answer rating: 100% (QA)

ANSWER PV of the minimum lease paymnet Implicit interest rate 8 pa No of Lease paymnets 6 Bargain pu... View the full answer