Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

On January 1, 2018, Corp X issued 3%, 3 year Bonds to the public, and also signed a 3 and 1/2 -year lease with PH

On January 1, 2018, Corp X issued 3%, 3 year Bonds to the public, and also signed a 3 and 1/2 -year lease with PH Corp. Payments of $10,000 on the lease are made at the end of the year for years 1,2 and 3 and ($5,000 in the last period; year 4.) There is a bargain purchase for the purchase of the asset for $3,000 at the end of the lease term. The asset has a fair value of $35,000 and has a useful economic life of 4 years.

Corp. X is rated as a BBB rated company by Moodys Investors-a rating company.

Additional Facts

1-BBB Market Interest rates:

Date of issue on 12/31/2019

Year 1 2% 1.5%

Year 2 2.5% 2.0%

Year 3 2.75% 2.5%

Year 4 3,5% 3.0%

Year 5 4.0%. 4.0%

------------------------------------------------------

3% bond issued for 3 year

Market interest rate = 3.5% from BBB

1. What is the implicit rate (IRR) on the lease?

2. What type of lease is this? Why?

3.What is the balance sheet effects of this lease on 1/1/18 and 12/31/18?

4. what is the lease expense in 2018? -PROVIDE ITS COMPONENTS

5. Present the cash flow effects of this lease for 2018.

PRESENT ALL DETAILED CALCULATIONS FOR EACH QUESTION*

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Global Financial Accounting And Reporting Principles And Analysis

Authors: Peter Walton, Walter Aerts

4th Edition

1473729521, 9781473729520

More Books

Students also viewed these Accounting questions