Johnstone (lessee) leased a backhoe with a useful life of 15 years from SlateCo (lessor) on January 1, 20X8. slate Co approximated a 12% rate when crafting the lease agreement, but Johnstone was not privy to that information. The equipment has a fair value of $190,000 and Slate’s cost is $172,000. A third party has guaranteed the residual value of $12,000. Slate paid $3,000 in legal fees during December 20X7 prior to executing the lease agreement. Johnstone’s incremental borrowing rate is 10%. Under the lease agreement, ten annual lease payments of $27,480 are due each January 1, beginning January 1, 20X8. Johnstone paid $1,500 of initial direct costs (commission paid to a lease negotiator).

a) What is reported on the 12/31/X8 balance sheet as Lease Receivable, net for SlateCo?

b) Ignoring taxes, what is the increase on SlateCo’s 20X8 Net Income related to the lease?

Answer rating: 100% (QA)

Answen poge 1 a tease contract Yor ease nent k year legul c... View the full answer