Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Federated fabrications leased a tooling machine on January 1, 2021, for a three-year period ending December 31, 2023. The lease agreement specified annual payments of

Federated fabrications leased a tooling machine on January 1, 2021, for a three-year period ending December 31, 2023. The lease agreement specified annual payments of $37,000 beginning with the first payment at the beginning of the lease, and each December 31 through 2022. The company had the option to purchase the machine on December 30, 2023, for $46,000 when its fair value was expected to be $61,000, a sufficient difference that exercise seems reasonably certain. The machine's estimated useful life was six years with no salvage value. Federated was aware that the lessor's implicit rate of return was 11%.

1) As indicated in class many times, list and briefly explain the 5 criteria to determine if this is a finance lease.

2) Is this a financing lease? How many of the criteria does this lease meet (that you can identify based on the information provided)?

3) Bonus (3 Points): Calculate the amount Federated should record as a right-of-use asset and lease liability for this finance lease.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Principles Of Corporate Finance

Authors: Richard A Brealey, Stewart C Myers, Franklin Allen

8th Edition

0073130826, 9780073130828

More Books

Students also viewed these Accounting questions