On January 1, 2022, Lenore Corporation signed a 5-year noncancelable lease for a machine. The terms of the lease called for Lenore to make annual payments of $10,000 at the beginning of each year, starting January 1, 2022. Lenore correctly accounts for the lease as a finance lease. The machine has an estimated useful life of 6 years and a $5,000 guaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Lenore uses the straight-line method of depreciation for all of its plant assets. Lenore’s incremental borrowing rate is 8% and the Lessor’s implicit rate is known to be 6%. Required: Compute the present value of the minimum lease payments for Lenore (lessee) assuming that the anticipated value of the machine at the end of the lease term will be at least $5,000.Compute the present value of the minimum lease payments for Lenore (lessee) assuming that the anticipated value of the machine at the end of the lease term will be $3,000.

Minimum lease payments refer to the contractual payments that a lessee (the party leasing the asset)…

Answered: On January 1, 2022, Lenore Corporation…

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 10MC: On August 1, 2019, Kern Company leased a machine to Day Company for a 6-year period requiring...

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On January 1, 2022, Lenore Corporation signed a 5-year noncancelable lease for a machine. The terms of the lease called for Lenore to make annual payments of $10,000 at the beginning of each year, starting January 1, 2022. Lenore correctly accounts for the lease as a finance lease. The machine has an estimated useful life of 6 years and a $5,000 guaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Lenore uses the straight-line method of depreciation for all of its plant assets. Lenore’s incremental borrowing rate is 8% and the Lessor’s implicit rate is known to be 6%.

Required:

Compute the present value of the minimum lease payments for Lenore (lessee) assuming that the anticipated value of the machine at the end of the lease term will be at least $5,000.
Compute the present value of the minimum lease payments for Lenore (lessee) assuming that the anticipated value of the machine at the end of the lease term will be $3,000.

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