Sliver Limited leases an equipment from Tesco Limited under the following lease terms.The lease term is 4 years, non-cancelable and requires equal annual rental payments at thebeginning of each calendar year starting 1 January 2021.Tesco Limited wants a guarantee that the residual value of the equipment at the end of the lease isat least $26,000. Sliver Limited agrees to guarantee a residual value of this amount though it expectsthe residual value of the equipment to be only $10,000 at the end of the lease term.The cost of an equipment is $230,000 and the fair value of the equipment is $350,000 on 1 January2021. The equipment has an economic life of 5 years.Both companies depreciate all their equipment on a straight-line basis.Tesco Limited wants to earn a return of 6% on the lease and collectability of the payment isprobable. Sliver Limited's incremental borrowing rate is 8%, and the implicit rate of the lessor isunknown.Required: (Round all amounts to the nearest dollar.)(a)Calculate the amount of annual lease payment required by the lessor.(b) Discuss the nature of this lease transaction from the viewpoint of the lessor.

Silver Limited leases an equipment from Tesco Limited. Lease term - 4 Years Fair value of the asset…

Required: (Round all amounts to the nearest dollar.) (a) Calculate the amount of annual lease payment required by the lessor. (b) Discuss the nature of this lease transaction from the viewpoint of the lessor.

Required: (Round all amounts to the nearest dollar.) (a) Calculate the amount of annual lease payment required by the lessor. (b) Discuss the nature of this lease transaction from the viewpoint of the lessor.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Leasing

Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.

Question

Sliver Limited leases an equipment from Tesco Limited under the following lease terms.
The lease term is 4 years, non-cancelable and requires equal annual rental payments at the
beginning of each calendar year starting 1 January 2021.
Tesco Limited wants a guarantee that the residual value of the equipment at the end of the lease is
at least $26,000. Sliver Limited agrees to guarantee a residual value of this amount though it expects
the residual value of the equipment to be only $10,000 at the end of the lease term.
The cost of an equipment is $230,000 and the fair value of the equipment is $350,000 on 1 January
2021. The equipment has an economic life of 5 years.
Both companies depreciate all their equipment on a straight-line basis.
Tesco Limited wants to earn a return of 6% on the lease and collectability of the payment is
probable. Sliver Limited's incremental borrowing rate is 8%, and the implicit rate of the lessor is
unknown.
Required: (Round all amounts to the nearest dollar.)
(a)
Calculate the amount of annual lease payment required by the lessor.
(b) Discuss the nature of this lease transaction from the viewpoint of the lessor.

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