Question
Montana Inc. sells computer systems. Montana leases computers to Utah Company on June 30, 2021. The computers cost Montana $12 million to manufacture. The lease
Montana Inc. sells computer systems. Montana leases computers to Utah Company on June 30, 2021. The computers cost Montana $12 million to manufacture. The lease is non-cancelable and has the following terms:
Lease payments: $2,466,754 semiannually; first payment due June 30, 2021; remaining payments due December 31 and June 30 each year through December 31, 2025.
Lease term: 5 years (10 semi-annual payments).
No residual value; no bargain purchase option.
Economic life of equipment: 5 years.
Implicit interest rate and lessee's incremental borrowing rate: 10% per year.
Fair value of the computers at June 30, 2021: $20 million.
Collectability of the rental payments is reasonably assured, and there are no lessor costs yet to be incurred.
1. The lease payable balance on Utah's books after the December 31, 2021 payment is closest to:
A) $15,943,154
B) $17,533,246
C) $21,000,000
D) $15,066,492
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started