Question: The Grygiel Company leases a machine with a fair value of $50,000 to the Baker Company. The lease has a life of six years and

The Grygiel Company leases a machine with a fair value of $50,000 to the Baker Company. The lease has a life of six years and requires a $10,000 payment at the end of each year. The lease does not include a transfer of ownership, nor a bargain purchase option, and the life of the lease is less than 75% of the expected economic life of the machine. The collectibility of the lease payments is reasonably assured, and there are no uncertainties involved in the lease.

Required

1. If Grygiel requires a return of 10%, compute the expected residual value of the machine.

2. If the residual value is guaranteed by the Baker Company, how would each company classify the lease?

3. If the residual value is not guaranteed by the Baker Company, how would each company classify the lease?

Step by Step Solution

★★★★★

3.39 Rating (152 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

1 Present value of lease payments 10000 x PV factor for 6 payments at 10 10000 x 4355261 43552 round... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

268-B-A-A-L (503).docx

120 KBs Word File

Students Have Also Explored These Related Accounting Questions!

British Matchbox Cars Case O n 1 July 2 0 X 5 , B M C L t d ( o r i g i n a l l y known a s British Matchbox Cars L t d ) acquired 6 0 % o f the issued voting shares o f Austin L t d for...

Grygiel Company leases a machine with a fair value of $50,000 to Baker Company. The lease has a life of 6 years and requires a $10,000 payment at the end of each year. The lease does not include a...

A person deposits $1000 at the end of each year into an annuity earning 5% interest compounded annually? How many years are required for the balance to reach $30,539? After how many years will the...

A bond pays $100 at the end of each year for five years, plus an additional $1,000 when the bond matures at the end of five years. What is the most you would be willing to pay for this bond if your...

Grygiel Company leases a machine with a fair value of $70,000 to Baker Company. The lease has a life of 6 years and requires a $14,000 payment at the end of each year. The lease does not include a...

Guaranteed and Unguaranteed Residual Values Grygiel Company leases a machine with a fair value of $70,000 to Baker Company. The lease has a life of 6 years and requires a $14,000 payment at the end...

Grygiel Company leases a machine with a fair value of $50,000 to Baker Company. The lease has a life of 6 years and requires a $10,000 payment at the end of each year. The lease does not include a...

* Practice Exercise 21-2 On January 2, 2017 Larkspur Company leases a machine with a fair value of $31,000 from Snead, Inc., on the following terms: 1. 2. Noncancelable term of 4 years. Rental of...

Guaranteed and Unguaranteed Residual Values Grygiel Company leases a nonspecialized machine with a fair value of $80,000 to Baker Company. The lease has a life of 6 years and requires a $12,000...

Guaranteed and Unguaranteed Residual Values Grygiel Company leases a nonspecialized machine with a fair value of $70,000 to Baker Company. The lease has a life of 6 years and requires a $10,500...

Grygiel Company leases a nonspecialized machine with a fair value of $40,000 to Baker Company. The lease has a life of 6 years and requires a $6,000 payment at the end of each year. The lease does...

In Problems a to b, find the length of the curve with the given vector equation. a. r(t) = t i + sin t j + cos t k; 0 t 2 b. r(t) = t cos t i + t sin t j + 2t k; 0 t 2

Using the information below, prepare a balance sheet for Javier's QuickBooks Company as of June 30,2020 Common Stock Supplies Expense Account Receivable Account Payable Retained Earnings $ 55,000...

Consider the events "the bomber makes it back" and the event "The bomber didn't make it back". State the sum of the probability of these two events. Explain which assumption you implicitly made to...

Do blood-building drugs help brain development in babies born prematurely? Researchers randomly assigned 53 babies, born more than a month premature and weighing less than 3 pounds, to one of three...

Professor Charon has a set of n sticks, which are piled up in some configuration. Each stick is specified by its endpoints, and each endpoint is an ordered triple giving its (x, y, z) coordinates. No...

An empty cannister of volume 0.05 ft 3 is filled with R-134a from a line flowing saturated liquid R-134a at 40 F. The filling is done quickly, so it is adiabatic. How much mass of R-134a is in the...

A study of blood flow involved 27 healthy people aged 18 to 72. Each subject consumed a cocoa beverage containing 900 milligrams of flavonols daily for 5 days. Using a finger cuff, blood flow was...

The Survey of Study Habits and Attitudes (SSHA) is a psychological test that measures students attitudes toward school and study habits. Scores range from 0 to 200. Higher scores indicate better...

8. Reindexing (LO4, CFA2) Suppose you calculated the total market value of the stocks in an index over a five-year period: Year 1: 4,387 million. Year 2: 4,671 million Year 3: 5,032 million Year 4:...

Earnings per share can affect market prices of common stock. Can market prices affect earnings per share? Explain.

In a certain town up in the mountains there are no bears at time t = 0. Brown bears and grizzly bears arrive according to two independent Poisson processes with respective arrival rates and . (a)...

Tiga sistem injeksi bahan bakar diuji efisiensinya dan diperoleh data sebagai berikut: Sistem 1 Sistem 2 Sistem 3 48 60 57 56 56 55 46 53 52 45 60 50 50 51 21 pasangan sistem injeksi mana yang...

Exodus Limousine Company has $1,000 par value bonds outstanding at 10 percent interest. The bonds will mature in 50 years. Use Appendix B and AppendixD for an approximate answer but calculate your...