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Riverbed Dairy leases its milking equipment from Marin Finance Company under the following lease terms, 1. 2. 3. 4. The lease term is 10
Riverbed Dairy leases its milking equipment from Marin Finance Company under the following lease terms, 1. 2. 3. 4. The lease term is 10 years, noncancelable, and requires equal rental payments of $29,400 due at the beginning of each year starting January 1, 2020. The equipment has a fair value at the commencement of the lease (January 1, 2020) of $222,184 and a cost of $231,000 on Marin Finance's books. It also has an estimated economic life of 15 years and an expected residual value of $14,100, though Riverbed Dairy has guaranteed a residual value of $19,700 to Marin Finance. The lease contains no renewal options, and the equipment reverts to Marin Finance upon termination of the lease. The equipment is not of a specialized use. Riverbed Dairy's incremental borrowing rate is 8% per year. The implicit rate is also 8%. 5. Riverbed Dairy depreciates similar equipment that it owns on a straight-line basis. 6. Collectibility of the payments is probable. Click here to view factor tables. (a) Your answer is correct. Evaluate the criteria for classification of the lease, and describe the nature of the lease. In general, discuss how the lessee and lessor should account for the lease transaction. For the lessee, it is a finance lease , and for the lessor, it is a sales-type lease
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