Question
Blossom Company leases a building to Kingbird, Inc. on January 1, 2020. The following facts pertain to the lease agreement. Ownership does not transfer
Blossom Company leases a building to Kingbird, Inc. on January 1, 2020. The following facts pertain to the lease agreement. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature. 1. The lease term is 4 years, with equal annual rental payments of $3,098 at the beginning of each year. 2. 3. 4. 5. The building has a fair value of $12,000, a book value to Blossom of $5,000, and a useful life of 5 years. At the end of the lease term, Blossom and Kingbird expect there to be an unguaranteed residual value of $1,250. Blossom wants to earn a return of 8% on the lease, and collectibility of the payments is probable. Kingbird was unaware of the implicit rate used in the lease by Blossom and has an incremental borrowing rate of 9%. Click here to view factor tables. How would Blossom (lessor) and Kingbird (lessee) classify this lease? Blossom would classify the lease as a sales-type lease. Kingbird would classify the lease as a V lease. How would Blossom initially measure the lease receivable, and how would Kingbird initially measure the lease liability and right- of-use asset? (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to O decimal places, e.g. 5,275.) Blossom Lease receivable $ Present value of lease pay $ Kingbird Lease Liability/Right-of-Use Asset $
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