View Policies Show Attempt History Current Attempt in Progress Martinez Leasing Company agrees to lease equipment to Sandhill Corporation on January 1, 2020. The following information relates to the lease agreement. 1. 2. 3. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. The cost of the machinery is $520,000, and the fair value of the asset on January 1, 2020, is $737,000. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $60,000. Sandhill estimates that the expected residual value at the end of the lease term will be 60,000. Sandhill amortizes all of its leased equipment on a straight-line basis. The lease agreement requires equal annual rental payments, beginning on January 1, 2020. The collectibility of the lease payments is probable. Martinez desires a 10% rate of return on its investments. Sandhill's incremental borrowing rate is 11%, and the lessor's implicit rate is unknown. 4. 5. 6. (Assume the accounting period ends on December 31.) Click here to view factor tables. (a) Your answer is correct. Discuss the nature of this lease for both the lessee and the lessor. This is a finance lease for Sandhill. This is a sales-type lease for Martinez eTextbook and Media List of Accounts Attempts: 3 of 5 used (b) 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 $ eTextbook and Media List of Accounts Save for Later Attempts: 0 of 5 used Submit Answer (c) 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 $ eTextbook and Media List of Accounts Save for Later Attempts: 0 of 5 used Submit Answer and enter 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 Credi 1/1/20 Leased Equipment Lease Liability (To record the lease.) Lease Liability Cash (To record lease payment.) 1/1/21 Depreciation Expense Accumulated Depreciation-Capital Leases (To record amortization.) Interest Expense TANT IN IONI Interest Payable MI TAK MOTO (To record interest.) 12/31/20 Lease Liability Interest Payable 12/31/21 Depreciation Expense Accumulated Depreciation-Capital Leases (To record amortization.) Interest Expense Interest Payable (To record interest.) automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter for the amounts. Round answers to decimal places e.g. 58,972. Record journal entries in the order presented in the problem.) Date Account Titles and Explanation Debit Crei 1/1/20 Lease Receivable Cost of Goods Sold Sales Revenue Inventory (To record the lease.) 1/1/20 Cash Lease Receivable TIIMI TITUD (To record lease payment.) 12/31/20 Interest Receivable Interest Revenue 1/1/21 Cash Interest Receivable 12/31/21 Interest Receivable Interest Revenue eTextbook and Media (f) Suppose Sandhill 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 $ eTextbook and Media List of Accounts Save for Later Attempts: 0 of 5 used Submit
