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LSU Company signs an agreement on January 1, 2009, to lease equipment to Tiger Corporation. The following information relates to this agreement: The term of
LSU Company signs an agreement on January 1, 2009, to lease equipment to Tiger Corporation. The following information relates to this agreement:
- The term of the non cancelable lease is 6 years with no renewal option. The equipment has an estimated economic life of 6 years.
- The cost of the asset to the lessor is $245,000. The fair value of the asset on January 1, 2009, is $245,000.
- The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $43,622, none of which is guaranteed.
- The agreement requires annual rental payments, beginning Jan. 1, 2009.
- Collectability of the lease payments is reasonably predictable. There are no important uncertainties surrounding the amount of costs yet to be incurred by the lessor.
- The lessors rate of return is 10% and is known to the lessee. The lessees borrowing rate is 12%.
- Calculate the annual rent payment.
- Prepare all of the journal entries for the lessor for 2009 and 2010.
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