Question
Jupiter Corp. leases a rocket-themed amusement ride with a fair value of $110,000 on the following terms: 1. Noncancelable term of 10 years. 2. Rental
Jupiter Corp. leases a rocket-themed amusement ride with a fair value of $110,000 on the following terms:
1. Noncancelable term of 10 years.
2. Rental of $16,000 per year (at the end of each year). The present value at 10% per year is $98,313.
3. Estimated residual value after 10 years is $10,000. The present value at 10% per year is $3,855.
Jupiter Corp. guarantees the residual value of $10,000.
4. Estimated economic life of the ride is 12 years.
5. Jupiters incremental borrowing rate is 10% a year. The lessors implicit rate is unknown.
Instructions PLEASE SHOW WORK
(a) What is the nature of this lease to Jupiter?
(b) What is the present value of the minimum lease payments?
(c) Record the lease on Jupiters books at the date of inception.
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