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Exercise 21-03 (Part Level Submission) Windsor Company leases an automobile with a fair value of $14,845 from John Simon Motors, Inc., on the following terms:
Exercise 21-03 (Part Level Submission) Windsor Company leases an automobile with a fair value of $14,845 from John Simon Motors, Inc., on the following terms: 1. 2. 3. Non-cancelable term of 50 months. Rental of $310 per month (at the beginning of each month). (The present value at 0.5% per month is $8,873.) Windsor guarantees a residual value of $1,030 (the present value at 0.5% per month is $920). Delaney expects the probable residual value to be $1,030 at the end of the lease term. Estimated economic life of the automobile is 60 months. Windsor's incremental borrowing rate is 6% a year (0.5% a month). Simon's implicit rate is unknown. 4. 5. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) (a) Your answer is correct. What is the nature of this lease to Windsor? The nature of this lease is a/an finance lease. SHOW LIST OF ACCOUNTS SHOW SOLUTION LINK TO TEXT LINK TO TEXT Attempts: 1 of 5 used (b) X Your answer is incorrect. Try again. What is the present value of the lease payments to determine the lease liability? (Round answer to 0 decimal places, e.g. 5,275.) Present value of the lease payments Problem 21-06 (Part Level Submission) Sarasota Leasing Company agrees to lease equipment to Ivanhoe 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 $523,000, and the fair value of the asset on January 1, 2020, is $758,000. 3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $60,000. Ivanhoe estimates that the expected residual value at the end of the lease term will be 60,000. Ivanhoe 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. Sarasota desires a 10% rate of return on its investments. Ivanhoe's incremental borrowing rate is 11%, and the lessor's implicit rate is unknown. (Assume the accounting period ends on December 31.) Click here to view factor tables. (a) Discuss the nature of this lease for both the lessee and the lessor. This is a for Ivanhoe. This is a for Sarasota
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