On January $1,2023,$ Cory Company $($seller$-$lessee$)$ sold excavating equipment to Elk Bank $($buyer$-$lessor$)$ for its fair market value of $$6,200,000$ and immediately leased it back under a five$-$year,

noncancellable lease at $$1,023,034$ per year, first payable on the commencement date. The remaining useful life of the equipment is $15$ years, at which time its residual value is $$0.$

Cory has provided a residual guarantee for $$4,400,000,$ although the expected payout under this guarantee is only $$510,000.$ Cory Company must return the asset to Elk at the end of the lease

term. Elk used an implicit rate of $8\%$ to determine the lease payments, and this is readily determinable by Cory. The equipment had a carrying value of $$4,400,000$ on Cory's books. Both

companies have a December $31$ year$-$end date, and both companies depreciate this type of asset on a straight$-$line basis.

Required

Requirement a$.$ Evaluate how the seller$-$lessee $($Cory$)$ should account for the lease transaction.

Select the correct statement on how $($Cory$)$ should account for the lease transaction.

A$.$ The lease contract does not include any provisions that preclude Cory from recognizing this transaction as a sale. As such, the company will recognize a sale of the asset and an ROU

asset and lease liability for the lease.

B$.$ The lease contract includes provisions that preclude Cory from recognizing this transaction as sale. As such, the company will recognize a sale of the asset and net book value of asset

and lease expense for the lease.

C$.$ The lease contract includes provisions that preclude Cory from recognizing this transaction as a sale. As such, the company will recognize the sale as low$-$value assets.

D$.$ The lease contract includes provisions that preclude Cory from recognizing this transaction as a sale. As such, the company will recognize a sale of the asset and an ROU liability and

lease asset for the lease.

Requirement b$.$ Determine the value of the ROU asset and lease liability at initial recognition for Cory, the seller$-$lessee. $($Use a financial calculator for all present value computations. Enter your

final answer as a positive amount rounded to the nearest whole dollar.$)$

What is the value of the ROU asset?On January$1,2023,$ Cory Company$($seller$-$lessee$)$ sold excavating equipment to Elk Bank$($buyer$-$lessor$)$ for its fair market value of $ $6$ comma $200$ comma $000$ and immediately leased it back under a five$-$year, noncancellable lease at $ $1$ comma $023$ comma $034$ per$$ year, first payable on the commencement date. The remaining useful life of the equipment is $15$years$,$ at which time its residual value is expected to be$$ $$0.$ Cory has provided a residual guarantee for $ $4$ comma $400$ comma $000,$ although the expected payout under this guarantee is only $ $510$ comma $000.$ Cory Company must return the asset to Elk at the end of the lease term. Elk used an implicit rate of $8\%$ to determine the lease$$ payments, and this is readily determinable by Cory. The equipment had a carrying value of $ $4$ comma $400$ comma $000$ on Cory$\text{'}$s books. Both companies have a December $31$ year$-$end date, and both companies depreciate this type of asset on a$$ straight$-$line basis.

Requirement b$.$ Determine the value of the ROU asset and lease liability at initial recognition for Cory$,$ the$$ seller$-$lessee. $($Use a financial calculator for all present value computations. Enter your final answer as a positive amount rounded to the nearest whole$$ dollar.$)$

What is the value of the ROU asset?