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Merlin Co. leased equipment to Houdini Inc. The equipment cost the lessor $200,000. The appropriate interest rate for this lease is 15%. The annual lease
Merlin Co. leased equipment to Houdini Inc. The equipment cost the lessor $200,000. The appropriate interest rate for this lease is 15%. The annual lease payments are made at the end of each year. The lease term is 3 years. The residual value at the end of the lease term is expected to be $40,000. Houdini has the option to purchase the equipment at that time for $20,000. Assume this is a direct financing lease. Required: 1. For this lease: (a.) The lease payment computed by the lessor is $_____________ (b.) The amount the lessee should capitalize is $____________ 2. How much interest should be recognized at the end of year 1 by the: (a.) Lessor? $__________ (b.) Lessee? $__________
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