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Cullumber Leasing Company agrees to lease equipment to Riverbed Corporation on January 1,2020 . The following information relates to the lease agreement. 1. The term
Cullumber Leasing Company agrees to lease equipment to Riverbed Corporation on January 1,2020 . The following information relates to the lease agreement. 1. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. 2. The cost of the machinery is $517,000, and the fair value of the asset on January 1,2020 , is $657,000. 3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $55,000. Riverbed estimates that the expected residual value at the end of the lease term will be 55,000 . Riverbed amortizes all of its leased equipment on a straight-line basis. 4. The lease agreement requires equal annual rental payments, beginning on January 1, 2020. 5. The collectibility of the lease payments is probable. 6. Cullumber desires a 10% rate of return on its investments. Riverbed's incremental borrowing rate is 11%, and the lessor's implicit rate is unknown. (Assume the accounting period ends on December 31.) Discuss the nature of this lease for both the lessee and the lessor. This is a for Riverbed. This is a for Cullumber
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