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C. 40 Problem 10 Lessee with Guaranteed Residual Value 41 On January 1, 1999, B Company leased a concrete truck with a fair value of
C. 40 Problem 10 Lessee with Guaranteed Residual Value 41 On January 1, 1999, B Company leased a concrete truck with a fair value of $265,000 from E Company on the following terms. 42 a. Noncancelable lease for 6 years 43 b. Lease payments of $52,500 per year. First payment is made on 1-1-19xx, and other payments are made on Dec. 31. 44 Estimated residual value is $45,890 and B Company guarantees residual value. 45 d. Estimated economic life of the truck is 9 years. 46 e. B's incremental borrowing rate is 13% a year. Implicit rate is 12%. 47 Required 48 1) Is this a capital lease or operating lease. Why? 49 2) Instructions: Prepare journal entries on the books of the lessee through the first two years. 50 The accounting period of A and B Company ends on December 31. 51 52
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