Question
Needed Information: -The equipment has an estimated useful life of 13 years. -There is no purchase option. Transfer of ownership to Michael is not stipulated
Needed Information:
-The equipment has an estimated useful life of 13 years. -There is no purchase option. Transfer of ownership to Michael is not stipulated in the lease contract. -The fair value to Thomas (lessor) at the inception of the lease was $4,000,000. Lessor's cost was $3,775,000. Sales commissions were $2,500. -Michael's incremental borrowing rate is 10%. The implicit annual rate in the lease (known to Michael) is 8%. - Michael and Thomas use straight-line depreciation. -The lease requires rental payments of $266,000, payable on 1/2/20 and subsequently on 6/30 and 12/31. -Michael guarantees that Thomas will realize $200,000 from selling the asset at the end of the lease. The expected residual value is $120,000. What is the present value of the lease payments for classification of the lease and for measurement of the ROU asset and lease liability for Michael? Please explain the work (steps). Check figures: ROU Asset $3,796,139 but for classification $3,850,906. Lease receivable $5,520,000 = [$266,000 x 20 ]+ $200,000
Please show all steps so I can understand (and learn) how to solve questions that similar. With different number of useful life and rental payments ect.)
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