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John Deer. is a manufacturer of truck trailers. On April 1, 2020, John Deer. leases ten trailers to Rigid Company under a six-year noncancelable lease
John Deer. is a manufacturer of truck trailers. On April 1, 2020, John Deer. leases ten trailers to Rigid Company under a six-year noncancelable lease agreement. The following information about the lease and the trailers is provided: 1. Equal annual payments that are due starting on April 1, 2020 provide John Deer. with an 8% return on net investment, unknown to Rigid Company. 2. There is a guaranteed residual value of $5,000 for each trailer, and based on past leases, Rigid Co is expected to pay approximately $2,000 per trailer under this agreement. 3. The fair value of each trailer is $65,000. The cost of each trailer to John Deer. is $45,000. Each trailer has an expected useful life of nine years. 4. Rigid’s borrowing rate is 11% Instructions
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