Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Sage Leasing Company agrees to lease equipment to Pronghorn Corporation on January 1, 2025. The following information relates to the lease agreement. 1. The

image text in transcribedimage text in transcribedimage text in transcribedimage text in transcribed

Sage Leasing Company agrees to lease equipment to Pronghorn Corporation on January 1, 2025. 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 $489,000, and the fair value of the asset on January 1, 2025, is $699,000. 3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $60,000. Pronghorn estimates that the expected residual value at the end of the lease term will be $60,000. Pronghorn amortizes all of its leased equipment on a straight-line basis. The lease agreement requires equal annual rental payments, beginning on January 1, 2025. 4. 5. The collectibility of the lease payments is probable. 6. Sage desires a 9% rate of return on its investments. Pronghorn's incremental borrowing rate is 10%, and the lessor's implicit rate is unknown. (Assume the accounting period ends on December 31.) (a) Your answer is correct. Discuss the nature of this lease for both the lessee and the lessor. This is a finance lease for Pronghorn. This is a sales-type lease for Sage. (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 $ 121434 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 LA $

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

Step: 3

blur-text-image

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

Define a traverse in Surveying?

Answered: 1 week ago