Question
On January 1, 20X1 Gold Inc. leased some new equipment for a term of 7 years. The equipment's expected life is 10 years (salvage
On January 1, 20X1 Gold Inc. leased some new equipment for a term of 7 years. The equipment's expected life is 10 years (salvage value = 0) and it has a fair market value of $1,000,000. The lease arrangement has no transfer of ownership, but does have a bargain purchase option for $75,000 that Gold will likely exercise. The contract requires annual lease payments (beginning of year payments) of $140,000. The incremental borrowing rate for Gold Inc. is 6% and the lessor's implicit rate of interest is 4%.
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