Question
The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Sandhill Company, a lessee. Commencement date January 1, Annual lease payment
The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Sandhill Company, a lessee. Commencement date January 1, Annual lease payment due at the beginning of each year, beginning with January 1, $126,840; Residual value of equipment at end of lease term, guaranteed by the lessee $55,000 ; Expected residual value of equipment at end of lease term $50,000; Lease term 6 years; Economic life of leased equipment 6 years; Fair value of asset at January 1, $653,000; Lessors implicit rate 9 %; Lessees incremental borrowing rate 9 %. The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased equipment.
1. Suppose Sandhill received a lease incentive of $5,000 from Faldo Leasing to enter the lease. How would the initial measurement of the lease liability and right-of-use asset be affected?
Right-of-use asset: ______
Lease Liability: ______
2. What if Sandhill prepaid rent of $5,000 to Faldo?
Right-of-use asset: ______
Lease Liability: ________
Please Note: The answer to lease liability is $623185. I have received different answers for the same question which are all incorrect.
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