Company leased a new machine from North Company on May 1, 2019, under a lease with the following information: Lease term 10 years Annual rental payable at beginning of each lease year $40,000 Useful life of machine 12 years Implicit interest rate 14% Present value factor for an annuity of 1 in advance for 10 periods at 14% 5.95 Present value factor for 1 for 10 periods at 14% 0.27 East has the option to purchase the machine on May 1, 2029, by paying $50,000, which is significantly lower than the expected fair value of the machine on the
Company leased a new machine from North Company on May 1, 2019, under a lease with the following information: Lease term 10 years Annual rental payable at beginning of each lease year $40,000 Useful life of machine 12 years Implicit interest rate 14% Present value factor for an annuity of 1 in advance for 10 periods at 14% 5.95 Present value factor for 1 for 10 periods at 14% 0.27 East has the option to purchase the machine on May 1, 2029, by paying $50,000, which is significantly lower than the expected fair value of the machine on the
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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East Company leased a new machine from North Company on May 1, 2019, under a lease with the following information:
| Lease term | 10 years |
| Annual rental payable at beginning of each lease year |
$40,000 |
| Useful life of machine | 12 years |
| Implicit interest rate | 14% |
in advance for 10 periods at 14% |
5.95 |
| Present value factor for 1 for 10 periods at 14% |
0.27 |
East has the option to purchase the machine on May 1, 2029, by paying $50,000, which is significantly lower than the expected fair value of the machine on the option exercise date. On May 1, 2019, East should record a right-of-use asset of:
a.$238,000
b.$251,500
c.$198,000
d.$224,500
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