Sandhill Company on January 1, 2021, enters into a 9-year noncancelable lease for equipment having an...

Sandhill Company on January 1, 2021, enters into a 9-year noncancelable lease for equipment having an estimated useful life of 10 years and a fair value to the lessor, Daly Corp., at the inception of the lease of $4,330,000. Sandhill's incremental borrowing rate is 10%. Sandhill uses the straight-line method to depreciate its assets. The lease contains the following provisions:

1. Rental payments of $288,000 for property taxes, payable at the beginning of each six-month period.

2. An option allowing the lessor to extend the lease one year beyond the lease term.

3. A guarantee by Sandhill Company that Daly Corp. will realize $220,000 from selling the asset at the expiration of the lease. However, the actual residual value is expected to be $137,000.

What is the present value of the lease payments (1) for classification of the lease and (2) for measurement of the lease liability? (Round final answers to 0 decimal place, e.g. 5,432.)

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ekkarill92 answered 1 year ago

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