On January 1, 2020, Carla Vista Company leased equipment to Flynn Corporation. The following information pertains to
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On January 1, 2020, Carla Vista Company leased equipment to Flynn Corporation. The following information pertains to this lease.
1. | The term of the non-cancelable lease is 6 years. At the end of the lease term, Flynn has the option to purchase the equipment for $3,000, while the expected residual value at the end of the lease is $8,000. | |
2. | Equal rental payments are due on January 1 of each year, beginning in 2020. | |
3. | The fair value of the equipment on January 1, 2020, is $150,000, and its cost is $120,000. | |
4. | The equipment has an economic life of 8 years. Flynn depreciates all of its equipment on a straight-line basis. | |
5. | Carla Vista set the annual rental to ensure a 6% rate of return. Flynn’s incremental borrowing rate is 7%, and the implicit rate of the lessor is unknown. | |
6. | Collectibility of lease payments by the lessor is probable. |
Both the lessor and the lessee’s accounting periods end on December 31.
Calculate the amount of the annual rental payment. (Round answer to 0 decimal places, e.g. 5,275.)
Related Book For
Intermediate Accounting IFRS
ISBN: 978-1119372936
3rd edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
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