Question
In: Accounting
Costco leased equipment from Cat Company under a four-year lease requiring equal annual payments of $170,000,...
Costco leased equipment from Cat Company under a four-year lease requiring equal annual payments of $170,000, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 4-year useful life and a $1,000 guaranteed residual value. If Costco, incremental borrowing rate is 8%, what is the amount recorded for the asset at the lease inception?
| $615,533 |
| $592,765 |
| $608,842 |
| $569,937 |
Which of the following would be considered a capital lease? Assume all leases are noncancelable.
| Lessee rents equipment for 5 years. The equipment has a useful life of 8 years. |
| Lessee rents equipment no bargain purchase option. |
| Lessee rents equipment, but the ownership does not transfer over. |
| Lessee rents equipment in which the present value of the minimum lease payments are $40,000 and the fair value of the equipment is $42,000 |
Solutions
ekkarill92 answered 1 year agoRelated Solutions
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Each of the four independent situations below describes a lease requiring annual requiring annual lease payments...
Each of the four independent situations below describes a lease
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Situation
1
2
3
4
Lease term (years)
4
4
4
4
Asset's Useful Life (years)
6
6
5
6
Asset's fair value
$132,000
$123,000
$129,000
$117,00
Bargain Purchase option?
no
no
yes
no
Annual lease payments
Beg. of yr.
Beg. of yr.
End of yr.
End of yr.
Lessor's implicit rate (known by the lessee)
5%
5%
7%
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Lessee's incremental...
Each of the four independent situations below describes a lease requiring annual lease payments of $30,000....
Each of the four independent situations below describes a lease
requiring annual lease payments of $30,000.
Situation 1
Situation 2
Situation 3
Situation 4
Lease term (years)
4
4
4
4
Asset's useful life (years)
6
6
5
6
Asset's fair value
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$114,000
$129,000
$115,000
Bargain purchase option?
No
No
Yes
No
Annual lease payments
Beg. of yr.
End of yr.
Beg. of yr.
End of yr.
Lessor's implicit rate (known by lessee)
5%
6%
6%
5%
Lessee's incremental...
Each of the four independent situations below describes a lease requiring annual lease payments of $30,000....
Each of the four independent situations below describes a lease
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Situation 1
Situation 2
Situation 3
Situation 4
Lease term (years)
4
4
4
4
Asset's useful life (years)
6
6
5
6
Asset's fair value
$132,000
$114,000
$129,000
$115,000
Bargain purchase option?
No
No
Yes
No
Annual lease payments
Beg. of yr.
End of yr.
Beg. of yr.
End of yr.
Lessor's implicit rate (known by lessee)
5%
6%
6%
5%
Lessee's incremental...
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Lease Term
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Annual Payments
$40,000 on January 1 each year
Life of asset
3 years
Implicit Interest Rate
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Incremental Rate
8%
PV, annuity due, 3 periods, 8%
2.7833
PV, ordinary annuity 3 periods, 8%
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Question 10 options:
more than in the fifth payment.
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less than in the fifth payment.
less than in the third payment.
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