On January 1, 2018, Corp X issued 3%, 3 year Bonds to the public, and also

On January 1, 2018, Corp X issued 3%, 3 ½ year Bonds to the public, and also signed a 3 and 1/2 -year lease with PH Corp. Payments of $10,000 on the lease are made at the end of the year for years 1,2 and 3 and ($5,000 in the last period; year 4.) There are no provisions for a bargain purchase or an extension of the lease term. The asset has a fair value of $35,000 and has a useful economic life of 4 years. Corp. X is rated as a BBB rated company by Moody’s Investors-a rating company. Additional Facts 1-BBB Market Interest rates:

Date of issue on 12/31/2019

Year 1 2% 1.5%

Year 2 2.5% 2.0%

Year 3 2.75% 2.5%

Year 4 3,5% 3.0%

Year 5 4.0%. 4.0%

1- What is the implicit rate (IRR)on the lease?

2- What type of lease is this?

3- What are the balance sheet effects of this lease on 1/1/18 and 12/31/18?

4-what is the lease expense in 2018?

5-Present the cash flow effects of this lease for 2018.

Answer rating: 100% (QA)

1 Calculation of Implicit rate IRR Year Amount Present valu... View the full answer