On January 1, 2019, Blue Co. leased a new machine from Green Co. The following information pertains
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Question:
On January 1, 2019, Blue Co. leased a new machine from Green Co. The following information pertains to the lease:
Lease term | 5 | years | |
Annual rental payable at beginning of each year | $ | 55,000 | |
Useful life of machine | 7 | years | |
Blue’s incremental borrowing rate | 12 | % | |
Implicit interest rate in lease (known by Blue) | 10 | % | |
Present value of annuity of $1 in advance for 5 periods at | |||
10% | 4.17 | ||
12% | 4.04 |
The cost of the machine on Green’s accounting records is $214,500. It is customized for Blue’s use with no alternative use to Green at the end of the lease term. At the beginning of the lease term, Blue Co. should initially record a right-of-use asset of
a. $214,500
b. $222,200
c. $229,350
d. $174,350
Related Book For
Intermediate Accounting Reporting and Analysis
ISBN: 978-1285453828
2nd edition
Authors: James M. Wahlen, Jefferson P. Jones, Donald Pagach
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