Dunlap Company leased a large copier to Rust Company for a three-year period. Dunlap paid ($ 30,000)

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Dunlap Company leased a large copier to Rust Company for a three-year period. Dunlap paid \(\$ 30,000\) for the copier and immediately leased it on January 1, 2020 (estimated useful life is four years, and Dunlap expects the residual value at the end of the lease term to be \(\$ 6,000\) ). Dunlap used an expected rate of return of \(6 \%\) (known by Rust). The lessee agreed to guarantee two-thirds \((\$ 4,000)\) of the residual value. The first lease payment is due on January 1,2020, and the accounting periods for both entities end on December 31. At the lease termination date, an independent appraiser provided an estimated residual value of \(\$ 3,000\). The lessee immediately paid the difference of \(\$ 1,000\) ( \(\$ 4,000\) guaranteed residual value minus \(\$ 3,000\), the actual residual value).

Required

a. Compute the lease payment for the lessor and the lease receivable to be capitalized by the lessor.

b. Provide the entries for the lessor on January 1,2020.

c. Provide the entries for the lessor through the lease term.

d. Instead assume that the collectibility of the lease payments by Rust Company was not probable. How would your answer to part ( \(b\) ) change?

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Intermediate Accounting Volume 2

ISBN: 9781618533135

2nd Edition

Authors: Hanlon, Hodder, Nelson, Roulstone, Dragoo

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