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Needed Information: -The equipment has an estimated useful life of 13 years. (Changed to 15 for...

Needed Information:

-The equipment has an estimated useful life of 13 years. (Changed to 15 for this problem)**
-There is no purchase option. Transfer of ownership to Michael is not stipulated in the lease contract.
-The fair value to Thomas (lessor) at the inception of the lease was $4,000,000. Lessor's cost was $3,775,000. Sales
commissions were $2,500.
-Michael's incremental borrowing rate is 10%. The implicit annual rate in the lease (known to Michael) is 8%.
- Michael and Thomas use straight-line depreciation.
-The lease requires rental payments of $266,000, payable on 1/2/20 and subsequently on 6/30 and 12/31.
-Michael guarantees that Thomas will realize $200,000 from selling the asset at the end of the lease. The expected
residual value is $120,000.

- ROU Asset $3,796,139 but for classification $3,850,906. Lease receivable $5,520,000 = [$266,000 x 20 ]+ $200,000

Refer to the original facts but assume that the expected useful life is 15 years and the rental payments are $220,000 with the same residual value stipulations. Give the entries for both lessee and lessor for 2020. Please show work.

Tips* [220,000 (P19,4% + 1.00 = 14.13394) = 3,109,467] + [200,000 (p20,4% = .45639) = 91,278] = ? ? operating lease. Liability: 3,109,467 + 80,000 (.45639) = 36,511 = 3,145,978

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ekkarill92 answered 2 years ago
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