The following information is available for a noncancelable lease of equipment entered into on March 1, 2019.
Question:
The following information is available for a noncancelable lease of equipment entered into on March 1, 2019. The lease is classified as a sales-type lease by the lessor (Anson Company) and as a finance lease by the lessee (Bullard Company). Assume that the lease payments are made at the beginning of each month, interest and straight-line depreciation are recognized at the end of each month, and the residual value of the leased asset is zero at the end of a 3-year life.
Cost of equipment to lessor (Anson Company) ................$50,000
Initial payment by lessee (Bullard Company)
at inception of lease .................................................................2,000
Present value of remaining 35
payments of $2,000 each discounted at 1%per month ....58,817
Required:
1. Record the lease (including the initial receipt of $2,000) and the receipt of the second and third installments of $2,000 in Anson’s accounts. Carry computations to the nearest dollar.
2. Record the lease (including the initial payment of $2,000), the payment of the second and third installments of $2,000, and monthly depreciation in Bullard’s accounts. The lessee records the lease obligation at net present value. Carry computations to the nearest dollar.
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at...
Step by Step Answer:
Intermediate Accounting Reporting and Analysis
ISBN: 978-1337788281
3rd edition
Authors: James M. Wahlen, Jefferson P. Jones, Donald Pagach