Facts:

Cullumber Company manufactures a check-in kiosk and, on January 1, 2017, leases it to Riverbed Airlines for a period of 3 years, with each years lease payment due at the beginning of that year.

The normal selling price of the equipment is $210,000, and its residual value at the end of the lease term is estimated to be $35,000.

The economic life of the leased asset is 4 years.

Cullumber seeks to earn a 10% annual return on this transaction (i.e., 10% is Cullumbers implicit interest rate).

Cullumber incurred costs of $160,000 in manufacturing the equipment and $4,000 in negotiating and closing the lease.

Cullumber has determined that the collectability of the lease payments is reasonably predictable and that no additional costs will be incurred.

In addition to the lease payments, Riverbed will pay all maintenance, insurance, and property taxes. These costs amounted to $5,000, $2,000, and $1,000, respectively, in 2017, 2018, and 2019.

Fiscal years for both Cullumber and Riverbed conform to the calendar year and the companies prepare financial statements as of the end of each fiscal year.

Riverbed Airlines has an incremental borrowing rate of 11% and knows that Cullumbers implicit interest rate is 10%.

The kiosk has a fair value of $20,000 when Riverbed returns it to Cullumber at the end of 2019.

Requirements:

Assuming the residual value is NOT guaranteed by the lessee, determine the impact (if any) of this lease arrangement on the LESSORS pretax income for the years, 2017 through 2019. Indicate increases with positive numbers and decreases with negative numbers.

2017
2018
2019

Assuming the residual value is NOT guaranteed by the lessee, determine the impact (if any) of this lease arrangement on the LESSEES pretax income, depreciable assets, and liabilities for the years, 2017 through 2019. Indicate increases with positive numbers and decreases with negative numbers.

	Effect on:
	Pretax income	Depreciable assets	Total liabilities
2017
2018
2019