Cullumber Leasing Company agrees to lease equipment to Riverbed 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 $523,000, and the fair value of the asset on January 1, 2020, is $758,000. 3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $60,000. Riverbed estimates that the expected residual value at the end of the lease term will be 60,000. Riverbed 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. Cullumber desires a 10% rate of return on its investments. Riverbed's incremental borrowing rate is 11%, and the lessor's implicit rate is unknown. Discuss the nature of this lease for both the lessee and the lessor. This is a v for Riverbed. This is a v for Cullumber. eTextbook and Media List of Accounts 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 0 decimal places e.g. 58,972.) Annual rental payment $ 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 0 decimal places e.g. 58,972.) Present value of minimum lease payments $ Prepare the journal entries Riverbed would make in 2020 and 2021 related to the lease arrangement. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Round answers to 0 decimal places e.g. 58,972. Record journal entries in the order presented in the problem.) Date Account Titles and Explanation Debit Credit (To record the lease.) (To record lease payment.) (To record amortization.) (To record interest.) (To record amortization.) (To record amortization.) (To record interest.) Prepare the journal entries Cullumber would make in 2020 and 2021 related to the lease arrangement. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Round answers to 0 decimal places e.g. 58,972. Record journal entries in the order presented in the problem.) Date Account Titles and Explanation Debit Credit (To record the lease.) (To record lease payment.) Suppose Riverbed expects the residual value at the end of the lease term to be $50,000 but still guarantees a residual of $60,000. Compute the value of the lease liability at lease commencement. Lease liability $
