Homework: Exercises for Operating Leases

Question $2$ of $2$

$\frac{0\mathrm{.}38}{1\mathrm{.}5}$

Ivanhoe Corporation entered into a lease agreement on January $1,2025,$ to provide Cullumber Company with a piece of machinery. The terms of the lease agreement were as follows.

The lease is to be for $3$ years with rental payments of $$12,639$ to be made at the beginning of each year.

The machinery has a fair value of $$61,000,$ a book value of $$40,000,$ and an economic life of $8$ years.

At the end of the lease term, both parties expect the machinery to have a residual value of $$30,000,$ none of which is guaranteed.

The lease does not transfer ownership at the end of the lease term, does not have a bargain purchase option, and the asset is not of a specialized nature.

The implicit rate is $5\%,$ which is known by Cullumber.

Collectibility of the payments is probable.