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Oriole Company, as lessee, enters into a lease agreement on July 1, 2021, for equipment. The following data are relevant to the lease agreement: 1.
Oriole Company, as lessee, enters into a lease agreement on July 1, 2021, for equipment. The following data are relevant to the lease agreement:
1. | The term of the noncancelable lease is 4 years, with no renewal option. Payments of $869,129 are due on July 1 of each year. | |
2. | The fair value of the equipment on July 1, 2021 is $3,150,000. The equipment has an economic life of 6 years with no salvage value. | |
3. | Oriole depreciates similar machinery it owns on the sum-of-the-years'-digits basis. | |
4. | The lessee pays all executory costs. | |
5. | Oriole's incremental borrowing rate is 9% per year. The lessee is aware that the lessor used an implicit rate of 7% in computing the lease payments. |
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