Question
Northern Equipment leases cooling towers to Warmup Corporation. The equipment is not specialized and is delivered on January1, 2019. The fair value of the equipment
Northern Equipment leases cooling towers to Warmup Corporation. The equipment is not specialized and is delivered on January1, 2019. The fair value of the equipment is$180,000. The cost of the equipment to Northern is$170,000 and the expected life of the testing equipment is 8 years. At the end of the usefullife, it is expected that the equipment will have a residual value of$20,000, although the lessee guarantees only$15,000. Northern incurs initial direct costs of$20,000, which they elect to expense. The lease term for the equipment is 8years, with the first payment due upondelivery, and seven subsequent annual payments beginning on December31, 2019 and ending on December31, 2025.Northern's implicit rate is8% and they expect that collection of the $ 29,000
$29,000 payments is probable. The lease is properly classified as a salestype lease.
What amount will be recorded for cost of goodssold? (Round any present value calculations to the nearestdollar, and round any percentages two decimalplaces, X.XX%.)
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