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Answer questions 14-19 from the following information. On January 1, Lessor Company leases equipment to Lessee Company. The lease term is 7 years; the economic
Answer questions 14-19 from the following information.
On January 1, Lessor Company leases equipment to Lessee Company. The lease term is 7 years; the economic life of the asset is 11 years. The cost of the equipment is $10,000; its fair value is $15,000. Lessors implicit rate is 5%; Lessees incremental borrowing rate is 5%. The lease payments of $2,469 are due at the beginning of each year.
- Is this a finance lease or an operating lease for Lessee?
- What is the lease liability on January 1?
- What is the right-of-use asset on January 1?
- Now assume that there is an unguaranteed residual value of $5,000, the present value of which is $3,555. If the present value factor of an annuity due, 7 periods at 5%, is 6.076, how much are the periodic payments?
- On the journal entry for Lessor, what is the dollar amount for Cost of Sales?
- Now assume that instead of the residual value of $5,000 being unguaranteed, the residual value is guaranteed by Lessee in the amount of $6,500. Does Lessee include the $5,000 guaranteed residual value in the lease liability?
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