Problem 21-06 (Part Level Submission)

Glaus Leasing Company agrees to lease equipment to Jensen Corporation on January 1, 2020. The following information relates to the lease agreement.

1.		The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years.
2.		The cost of the machinery is $525,000, and the fair value of the asset on January 1, 2020, is $700,000.
3.		At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $50,000. Jensen estimates that the expected residual value at the end of the lease term will be 50,000. Jensen amortizes all of its leased equipment on a straight-line basis.
4.		The lease agreement requires equal annual rental payments, beginning on January 1, 2020.
5.		The collectibility of the lease payments is probable.
6.		Glaus desires a 5% rate of return on its investments. Jensens incremental borrowing rate is 6%, and the lessors implicit rate is unknown.

(b) Your answer is correct. Calculate the amount of the annual rental payment required. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to o decimal places e.g. 58,972.) Annual rental payment I 109365 Show Work is REQUIRED for this question: Open blank Show Work Copy Show Work from Previous attempt SHOW LIST OF ACCOUNTS SHOW SOLUTION LINK TO TEXT LINK TO TEXT Attempts: 1 of 4 used X Your answer is incorrect. Try again. Compute the value of the lease liability to the lessee. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to o decimal places e.g. 58,972.) Present value of minimum lease payments