Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

On January 1, 2025, Oriole Company leased equipment to Pharoah Corporation. The following information pertains to this lease. 1. 2. 3. 4. 5. 6. The

On January 1, 2025, Oriole Company leased equipment to Pharoah Corporation. The following information pertains to this lease. 1. 2. 3. 4. 5. 6. The term of the non-cancelable lease is 6 years. At the end of the lease term, Pharoah has the option to purchase the equipment for $3,000, while the expected residual value at the end of the lease is $8,000. Equal rental payments are due on January 1 of each year, beginning in 2025. The fair value of the equipment on January 1, 2025, is $140,000, and its cost is $110,000. The equipment has an economic life of 8 years. Pharoah depreciates all of its equipment on a straight-line basis. Oriole set the annual rental to ensure a 5% rate of return. Pharoah's incremental borrowing rate is 6%, 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 31. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
image text in transcribed
On January 1.2025, Oriole Company leased equipment to Pharoah Corporation. The following information pertains to this lease. 1. The term of the non-cancelable lease is 6 years. At the end of the lease term, Pharoah has the option to purchase the equipment for $3,000, while the expected residual value at the end of the lease is $8,000. 2. Equal rental payments are due on January 1 of each year, beginning in 2025. 3. The fair value of the equipment on January 1,2025 , is $140,000, and its cost is $110,000 4. The equipment has an economic life of 8 years. Pharoah depreciates all of its equipment on a straight-line basis. 5. Oriole set the annual rental to ensure a 5% rate of return. Pharoah's incremental borrowing rate is 6%, and the implicit rate of the lessor is unknown. 6. Collectibility of lease payments by the lessor is probable. Both the lessor and the lessee's accounting periods end on December 31. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Calculate the amount of the annual rental payment. (Round answer to 0 decimal places, eg. 5,275.) Annual rental payment $ eTextbook and Media List of Accounts Attempts: 0 of 8 used (c) The parts of this question must be completed in order. This part will be available when you complete the part above

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_2

Step: 3

blur-text-image_3

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

Managerial Accounting

Authors: James Jiambalvo

4th edition

9780470546888, 9780470333341, 470546883, 470333340, 978-0470578797

More Books

Students also viewed these Accounting questions

Question

5. Make suggestions for use at home.

Answered: 1 week ago

Question

Be prepared to address excessive absenteeism

Answered: 1 week ago