Morgan Handley and Tricia Holbrook are discussing the new leasing standard. Morgan believes the standard requires that the lessee use the implicit rate of the lessor in computing the present value of its lease liability. Tricia is not sure if Morgan is correct. Explain the discount rate that the lessee should use to compute its lease liability.
The lessee will require the rate in computing the present value of its lease liability .The lessee is required to find out its lease liability by taking the implicit rate in the lease if that rate is readily determined or if implicit rate is not available lessee can use incremental borrowing rate .The lessor will always have to use the implicit rate of return in the lease.
The implicit rate in the lease is the present value of annual lease payments ,any unguarantee residual value of the asset and any initial direct cost of the lessor.Incremental borrowing rate is the rate of interest that have to be paid on borrowing with the similar term having similar security in the similar economic environment.
The lessee should use to compute its lease liability the implicit rate if readily determined or else if implicit rate not known to him he can use incremental borrowing rate.
Morgan Handley and Tricia Holbrook are discussing the new leasing standard. Morgan believes the standard requires that t...
2. (LESSEE ENTRIES FOR AN OPERATING LEASE). Assume that Ace Leasing Company and King Company, a lessee, agreed to the lease shown below instead on the one shown in problem 1. Commencement of Lease Date January 1, 2020 Annual lease payment due at the beginning of the year beginning with January 1, 2020 $137,171 Lease term 6 years Economic life of leased equipment 10 years Fair Value of asset at January 1, 2020 $950,000 Lessor's Implicit Rate 12% Lessee's incremental...
(Lessee-Lessor Entries, Finance Lease with a Guaranteed Residual Value) (LO 2, 4) Glaus Leasing Company agrees to lease equipment to Jensen Corporation on January 1, 2017. The following information relates to the lease agreement. 1.The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. 2.The cost of the machinery is $525,000, and the fair value of the asset on January 1, 2017, is $700,000. 3.At the end...
Question 4 Glaus Leasing Company agrees to lease equipment to Jensen Corporation on January 1, 2020. The following information relates to the lease agreement. 1. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. 2. The cost of the machinery is $525,000, and the fair value of the asset on January 1, 2020, is $700,000. 3. At the end of the lease term, the asset reverts...
PROBLEMS 8 P21-1 (Lessee- Lessor Entries, Sales-Type Lease) Glaus Leasing Company agrees to lease ma Jensen Corporation on January 1, 2014. The following information relates to the lease agreement. 1. The term of the lease is 7 years with no renenval option, and the machinery has an estimated eco 2. The cost of the machinery is $525,000, and the fair value of the asset on January 1, 2014, is $700,000 of nomic life of 9 years. 3. At the end...
Laura Leasing Company signs an agreement on January 1, 2017, to lease equipment to Marin Company. The following information relates to this agreement. 1. The term of the noncancelable lease is 5 years with no renewal option. The equipment has arn estimated economic life of 5 years. 2. The fair value of the asset at January 1, 2017, is $82,500. The asset will revert to the lessor at the end of the lease term, at which time the asset is...
Your answer is partially correct. Try again. Laura Leasing Company signs an agreement on January 1, 2017, to lease equipment to Swifty Company. The following information relates to this agreement. 1. 2. 3. 4. 5. 6. The term of the non-cancelable lease is 3 years with no renewal option. The equipment has an estimated economic life of 5 years. The fair value of the asset at January 1, 2017, is $69,000. The asset will revert to the lessor at the...
Sheridan Leasing Company agrees to lease equipment to Skysong Corporation on January 1, 2020. The following information relates to the lease agreement. 1. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. 2. The cost of the machinery is $489,000, and the fair value of the asset on January 1, 2020, is $699,000. 3. At the end of the lease term, the asset reverts to the...
Carla Leasing Company agrees to lease equipment to Sarasota
Corporation on January 1, 2020.
The term of the lease is 7 years with no renewal option, and the
machinery has an estimated economic life of 9 years. The cost of
the machinery is $541,000, and the fair value of the asset on
January 1, 2020, is $760,000. At the end of the lease term, the
asset reverts to the lessor and has a guaranteed residual value of
$45,000. Sarasota estimates...
Laura Leasing Company signs an agreement on January 1, 2017, to
lease equipment to Novak Company. The following information relates
to this agreement.
1.
The term of the noncancelable lease is 5 years with no renewal
option. The equipment has an estimated economic life of 5
years.
2.
The fair value of the asset at January 1, 2017, is
$79,900.
3.
The asset will revert to the lessor at the end of the lease
term, at which time the asset...