Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Wildhorse Corporation manufactures specialty equipment with an estimated economic life of 12 years and leases it to Provincial Airlines Corp. for a period of 10
Wildhorse Corporation manufactures specialty equipment with an estimated economic life of 12 years and leases it to Provincial Airlines Corp. for a period of 10 years. Both Wildhorse and Provincial Airlines follow ASPE. The equipment's normal selling price is $210,482 and its unguaranteed residual value at the end of the lease term is estimated to be $18,000. Provincial Airlines will make annual payments of $23,900 at the beginning of each year and pay for all maintenance and insurance. Wildhorse incurred costs of $105,000 in manufacturing the equipment and $7,000 in negotiating and closing the lease. Wildhorse has determined that the collectibility of the lease payments is reasonably predictable, that no additional costs will be incurred, and that the implicit interest rate is 8%. Provincial Airlines Corp. has an incremental borrowing rate of 8%. Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE. Part 1 Your answer is correct. What classification will Provincial Airlines Corp.give to the lease? The lease will be classified as a capital lease Part 2 Your answer is correct. What difference, if any, would occur in the classification of the lease if Provincial were using IFRS 16? The lease would be classified as a right-of-use asset and lease liability e Textbook and Media List of Accounts Attempts: 1 of 2 used Part 3 X Your answer is incorrect. Using time value of money tables, a financial calculator, or Excel functions, calculate the amount of the initial obligation under capital leases. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to O decimal places, e.g. 5,275.) Initial Obligations Under Leases $ 168,708
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started