In: Accounting
Complete the following questions. In addition to answering the items below, you must submit an analysis of the assignment. Analyze the specific outcomes and write an analysis directed toward the team at Coco Inc. describing what the numbers mean and how they relate to the business. Submit journal entries in an Excel file and written segments in an MS Word document. For written answers, please make sure your responses are well-written, formatted per CSU-Global Guide to Writing and APA (Links to an external site.)Links to an external site. and have proper citations, where applicable.
Assume that the following facts pertain to a non-cancelable lease agreement between Coco Inc. and Bubs Corp, a Lessee.
Inception date |
January 1, 2018 |
Residual value of equipment at end of lease term, unguaranteed |
$100,000 |
Lease term |
6 years |
Economic life of leased equipment |
8 years |
Fair value of asset at January 1, 2017 |
$800,000 |
Lessor’s implicit rate |
12% |
Lessee’s incremental borrowing rate |
10% |
The lessee assumes responsibility for all executory costs, which are expected to amount to $4,000 per year. The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line depreciation method for all equipment.