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Blue Corporation, a lessee, enters into a non-cancellable lease contract with LOR Limited, a lessor, on September 1. 2024. Assume that the signing and
Blue Corporation, a lessee, enters into a non-cancellable lease contract with LOR Limited, a lessor, on September 1. 2024. Assume that the signing and delivery of the lease happened on the same day. The lease terms and conditions are set out below: Leased asset Manufacturing equipment Economic life of equipment Lease term 7 years September 1, 2024, to August 31, 2028 Lease payment per year, payable in advance $4,800 Renewal option Renewable for additional two years at the option of lessee at $4,300 per year Expected value of asset (not guaranteed) -August 31, 2028 $5,800 -August 31, 2030 $1,000 Title to leased equipment Retained by lessor Rate implicit in the lease Lessee's incremental borrowing rate Fair value of leased asset, September 1, 2024 9% 9% $23,200
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