Question
Jarvis Company leased a new machine beginning on January 1, 2019. The lease, which has an implicit interest rate of 6%, is for 5 years
Jarvis Company leased a new machine beginning on January 1, 2019. The lease, which has an implicit interest rate of 6%, is for 5 years and requires annual payments of $10,000 on each December 31. The 5-year lease term is considered a major part of the economic life of 6 years. The present value of an ordinary annuity of $1 at 6% for 5 periods is 4.212. Title to the machine remains with the lessor. The machine, which cost the lessor $30,000, has a useful life of 6 years and will be depreciated on a straight-line basis. What will be the carrying value of the machine at December 31, 2020?
a. $28,080 on the lessees books b, $25,272 on the lessees books c. $20,000 on the lessors books d. $18,000 on the lessors books
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