Question
Concord Corporation entered into a lease agreement on January 1, 2017, to provide Sheridan Company with a piece of machinery. The terms of the lease
Concord Corporation entered into a lease agreement on January 1, 2017, to provide Sheridan Company with a piece of machinery. The terms of the lease agreement were as follows. 1. The lease is to be for 3 years with rental payments of $12,000 to be made at the beginning of each year. 2. The machinery has a fair value of $60,000, a book value of $40,000, and an economic life of 8 years. 3. At the end of the lease term, both parties expect the machinery to have a residual value of $25,000, none of which is guaranteed. 4. The lease does not transfer ownership at the end of the lease term, does not have a bargain purchase option, and the asset is not of a specialized nature. 5. The implicit rate is 4%, which is known by Dawkins. 6. Collectibility of the payments is probable.
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