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On January 1, 2023 Chrome Co. signs an agreement with Fox enterprises to lease computer equipment. The term of the lease is 2 years, and
On January 1, 2023 Chrome Co. signs an agreement with Fox enterprises to lease computer equipment. The term of the lease is 2 years, and payments are due on the December 31 of each year. The equipment has a fair value of $100,000, no residual value and a 3 year economic life, and the cost to Fox was $70,000. Chrome's incremental borrowing rate is 5% and Fox's desired retum is 5%. The present value factor of $1 over 2 periods at 5% is 0.90703 , present value of an ordinary annuity for 2 periods at 5% is 1.85941 , and the present value of an annuity due for 2 periods at 5% is 1.9524 . a. Which of the following tests would indicate that this lease should be classified as a finance (sales-type) lease? b. Compute the annual lease payment amount that Fox will charge Chrome based on the information above: c. What entry will Fox record on 1/1/2023 ? d. What entry will Fox record on 12/31/2023
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