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Sunland Company leases a building to Splish Brothers, Inc. on January 1, 2020. The following facts pertain to the lease agreement. 1. The lease term
Sunland Company leases a building to Splish Brothers, Inc. on January 1, 2020. The following facts pertain to the lease agreement. 1. The lease term is 5 years, with equal annual rental payments of $6 , 050 at the beginning of each year. 2. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature. 3. The building has a fair value of $30 , 000 , a book value to $ u n l an d of $23 , 000 , and a useful life of 6 years. 4. At the end of the lease term, Sunland and $ plish Brothers expect there to be an unguaranteed residual value of $5 , 750 . 5. Sunland wants to earn a return of 8% on the lease, and collectibility of the payments is probable. Splish Brothers was unaware of the implicit rate used in the lease by Sunland and has an incremental borrowing rate of 9%. Click here to view factor tables. How would Sunland (lessor) and Splish Brothers (lessee) classify this lease? Sunland would classify the lease as a lease. Splish Brothers would classify the lease as a lease. How would Sunland initially measure the lease receivable, and how would Splish Brothers initially measure the lease liability and rightof-use asset? (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places, e.g. 5,275.)
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