Exercise 21-12 (Part Level Submission) On January 1, 2020, Ivanhoe Company leased equipment to Flynn Corporation. The following information pertains to this lease. 1. | | The term of the non-cancelable lease is 6 years. At the end of the lease term, Flynn has the option to purchase the equipment for $1,000, while the expected residual value at the end of the lease is $7,000. | 2. | | Equal rental payments are due on January 1 of each year, beginning in 2020. | 3. | | The fair value of the equipment on January 1, 2020, is $150,000, and its cost is $120,000. | 4. | | The equipment has an economic life of 8 years. Flynn depreciates all of its equipment on a straight-line basis. | 5. | | Ivanhoe set the annual rental to ensure a 7% rate of return. Flynns incremental borrowing rate is 8%, and the implicit rate of the lessor is unknown. | 6. | | Collectibility of lease payments by the lessor is probable. | Both the lessor and the lessees accounting periods end on December 31. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) |