Question
On December 31, 2016, Sandhill Company leased machinery from Terminator Corporation for an agreed upon lease term of 3 years. Sandhill agreed to make annual
On December 31, 2016, Sandhill Company leased machinery from Terminator Corporation for an agreed upon lease term of 3 years. Sandhill agreed to make annual lease payments of $19,000, beginning on December 31, 2016. The expected residual value of the machinery at the end of the lease term is $10,000. Sandhill guarantees a residual value of $10,000 at the end of the lease term, which equals the expected residual value of the machinery.
What amount will Sandhill record as its lease liability if the expected residual value at the end of the lease term is $6,000 and Sandhill guarantees a residual of $10,000. Its incremental borrowing rate is 9% and the implicit rate of the lease is unknown?
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