FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Sunland Leasing Company agrees to lease equipment to Coronado Corporation on January 1, 2020. The following information relates to the lease agreement.
(Assume the accounting period ends on December 31.)
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1. | The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. | |
2. | The cost of the machinery is $489,000, and the fair value of the asset on January 1, 2020, is $699,000. | |
3. | At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $60,000. Coronado estimates that the expected residual value at the end of the lease term will be 60,000. Coronado amortizes all of its leased equipment on a straight-line basis. | |
4. | The lease agreement requires equal annual rental payments, beginning on January 1, 2020. | |
5. | The collectibility of the lease payments is probable. | |
6. | Sunland desires a 9% |
(Assume the accounting period ends on December 31.)
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(a)
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Discuss the nature of this lease for both the lessee and the lessor.
This is a for Coronado.
This is a for Sunland.
This is a for Coronado.
This is a for Sunland.
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(b)
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Calculate the amount of the annual rental payment required. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,972.)
Annual rental payment |
$
|
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(c)
Compute the value of the lease liability to the lessee. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,972.)
Present value of minimum lease payments |
$
|
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(d)
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