3 Sunland Corporation enters into an agreement with Yates Rentals Co. on January 1, 2021 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement: (a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $676634 are due on January 1 of each year. (b) The fair value of the machine on January 1, 2021, is $1900000. The machine has a remaining economic life of 10 years, with no salvage value. The machine reverts to the lessor upon the termination of the lease. (c) Sunland depreciates all machinery it owns on a straight-line basis. (d) Sunland's incremental borrowing rate is 9% per year. Sunland does not have knowledge of the 7% implicit rate used by Yates. (e) Immediately after signing the lease, Yates finds out that Sunland Corp. is the defendant in a suit which is sufficiently material to make collectibility of future lease payments doubtful. If the present value of the future lease payments is $1900000 at January 1, 2021, what is the amount of the reduction in the lease liability for Sunland Corp. in the second full year of the lease if Sunland Corp. accounts for the lease as a finance lease? (Rounded to the nearest dollar.) O $549431 O $505634 O $543634 O $566531
3 Sunland Corporation enters into an agreement with Yates Rentals Co. on January 1, 2021 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement: (a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $676634 are due on January 1 of each year. (b) The fair value of the machine on January 1, 2021, is $1900000. The machine has a remaining economic life of 10 years, with no salvage value. The machine reverts to the lessor upon the termination of the lease. (c) Sunland depreciates all machinery it owns on a straight-line basis. (d) Sunland's incremental borrowing rate is 9% per year. Sunland does not have knowledge of the 7% implicit rate used by Yates. (e) Immediately after signing the lease, Yates finds out that Sunland Corp. is the defendant in a suit which is sufficiently material to make collectibility of future lease payments doubtful. If the present value of the future lease payments is $1900000 at January 1, 2021, what is the amount of the reduction in the lease liability for Sunland Corp. in the second full year of the lease if Sunland Corp. accounts for the lease as a finance lease? (Rounded to the nearest dollar.) O $549431 O $505634 O $543634 O $566531
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter20: Accounting For Leases
Section: Chapter Questions
Problem 1E: Determining Type of Lease and Subsequent Accounting On January 1, 2019, Caswell Company signs a...
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Sunland Corporation enters into an agreement with Yates Rentals Co. on January 1, 2021 for the purpose of leasing a machine to be
used in its manufacturing operations. The following data pertain to the agreement:
(a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $676634 are due on January 1 of each year.
(b) The fair value of the machine on January 1, 2021, is $1900000. The machine has a remaining economic life of 10 years, with no
salvage value. The machine reverts to the lessor upon the termination of the lease.
(c) Sunland depreciates all machinery it owns on a straight-line basis.
(d) Sunland's incremental borrowing rate is 9% per year. Sunland does not have knowledge of the 7% implicit rate used by Yates.
(e) Immediately after signing the lease, Yates finds out that Sunland Corp. is the defendant in a suit which is sufficiently material to
make collectibility of future lease payments doubtful.
If the present value of the future lease payments is $1900000 at January 1, 2021, what is the amount of the reduction in the lease
liability for Sunland Corp. in the second full year of the lease if Sunland Corp. accounts for the lease as a finance lease? (Rounded to the
nearest dollar.)
O $549431
O $505634
O $543634
O $566531
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