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Answer questions 14-19 from the following information. On January 1, Lessor Company leases equipment to Lessee...

Answer questions 14-19 from the following information.

On January 1, Lessor Company leases equipment to Lessee Company. The lease term is 7 years; the economic life of the asset is 11 years. The cost of the equipment is $10,000; its fair value is $15,000. Lessor’s implicit rate is 5%; Lessee’s incremental borrowing rate is 5%. The lease payments of $2,469 are due at the beginning of each year.

  1. Is this a finance lease or an operating lease for Lessee?
  2. What is the lease liability on January 1?
  3. What is the right-of-use asset on January 1?
  4. Now assume that there is an unguaranteed residual value of $5,000, the present value of which is $3,555. If the present value factor of an annuity due, 7 periods at 5%, is 6.076, how much are the periodic payments?
  5. On the journal entry for Lessor, what is the dollar amount for Cost of Sales?
  6. Now assume that instead of the residual value of $5,000 being unguaranteed, the residual value is guaranteed by Lessee in the amount of $6,500. Does Lessee include the $5,000 guaranteed residual value in the lease liability?

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ekkarill92 answered 2 years ago
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