Oriole Taffy Inc. manufactures an high-speed candy making machine with an estimated life of 10 years...

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Oriole Taffy Inc. manufactures an high-speed candy making machine with an estimated life of 10 years and leases it to Waterway Candy for a period of 8 years. The normal selling price of the machine is $175,534, and its guaranteed residual value at the end of the non-cancelable lease term is $7,000. Waterway will pay rents of $26,000 at the beginning of each year. Oriole incurred costs of $126,000 in manufacturing the machine and $4,500 in legal fees directly related to the signing of the lease. Oriole has determined that the collectibility of the lease payments is probable and that the implicit interest rate is 6%. Waterway Candy has an incremental borrowing rate of 6% and an expected residual value at the end of the lease of $6,000. The lessor's implicit rate is unknown to the lessee; the lessee uses straight-line asset amortization. Click here to view factor tables. (a) Your answer is partially correct. Discuss the nature of this lease in relation to the lessee. The nature of this lease in relation to the lessee is finance lease 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 O decimal places e.g. 5,275.) Initial Lease Liability $ Oriole Taffy Inc. manufactures an high-speed candy making machine with an estimated life of 10 years and leases it to Waterway Candy for a period of 8 years. The normal selling price of the machine is $175,534, and its guaranteed residual value at the end of the non-cancelable lease term is $7,000. Waterway will pay rents of $26,000 at the beginning of each year. Oriole incurred costs of $126,000 in manufacturing the machine and $4,500 in legal fees directly related to the signing of the lease. Oriole has determined that the collectibility of the lease payments is probable and that the implicit interest rate is 6%. Waterway Candy has an incremental borrowing rate of 6% and an expected residual value at the end of the lease of $6,000. The lessor's implicit rate is unknown to the lessee; the lessee uses straight-line asset amortization. Click here to view factor tables. (a) Your answer is partially correct. Discuss the nature of this lease in relation to the lessee. The nature of this lease in relation to the lessee is finance lease 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 O decimal places e.g. 5,275.) Initial Lease Liability $

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To determine the nature of the lease in relation to the lessee we need to compare the terms of the lease with the criteria for classifying leases as e... View the full answer