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On January 1 , 2 0 2 0 , Pharoah Company leased equipment to Flynn Corporation. The following information pertains to this lease. The term
On January Pharoah Company leased equipment to Flynn Corporation. The following information pertains to
this lease.
The term of the noncancelable lease is years. At the end of the lease term, Flynn has the option to purchase
the equipment for $ while the expected residual value at the end of the lease is $
Equal rental payments are due on January of each year, beginning in
The fair value of the equipment on January is $ and its cost is $
The equipment has an economic life of years. Flynn depreciates all of its equipment on a straightline basis.
Pharoah set the annual rental to ensure a rate of return. Flynns incremental borrowing rate is and the
implicit rate of the lessor is unknown.
Collectibility of lease payments by the lessor is probable.
Both the lessor and the lessee's accounting periods end on December
Click here to view factor tables.
For calculation purposes, use decimal places as displayed in the factor table provided.
a
Correct Answer
Your answer is correct.
Discuss the nature of this lease to Pharoah and Flynn
The nature of this lease for Pharoah is a
lease.
The nature of this lease for Flynn is a
lease.
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Question Part Score
b
Your answer is incorrect.
Calculate the amount of the annual rental payment. Round answer to decimal places, eg
Annual rental payment
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