Ivanhoe Leasing Company agrees to lease equipment to Shamrock Corporation on January 1, 2025. The following information relates to the lease agreement. 1. 2. 3. 4. 5. 6. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. The cost of the machinery is $569,000, and the fair value of the asset on January 1, 2025, is $682,000. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $55,000. Shamrock estimates that the expected residual value at the end of the lease term will be $55,000. Shamrock amortizes all of its leased equipment on a straight-line basis. The lease agreement requires equal annual rental payments, beginning on January 1, 2025. The collectibility of the lease payments is probable. Ivanhoe desires a 9% rate of return on its investments. Shamrock's incremental borrowing rate is 10%, and the lessor's implicit rate is unknown. (Assume the accounting period ends on December 31.) Click here to view factor tables. (f) Suppose Shamrock expects the residual value at the end of the lease term to be $45,000 but still guarantees a residual of $55,000. Compute the value of the lease liability at lease commencement. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,972.) Lease liability $
Ivanhoe Leasing Company agrees to lease equipment to Shamrock Corporation on January 1, 2025. The following information relates to the lease agreement. 1. 2. 3. 4. 5. 6. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. The cost of the machinery is $569,000, and the fair value of the asset on January 1, 2025, is $682,000. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $55,000. Shamrock estimates that the expected residual value at the end of the lease term will be $55,000. Shamrock amortizes all of its leased equipment on a straight-line basis. The lease agreement requires equal annual rental payments, beginning on January 1, 2025. The collectibility of the lease payments is probable. Ivanhoe desires a 9% rate of return on its investments. Shamrock's incremental borrowing rate is 10%, and the lessor's implicit rate is unknown. (Assume the accounting period ends on December 31.) Click here to view factor tables. (f) Suppose Shamrock expects the residual value at the end of the lease term to be $45,000 but still guarantees a residual of $55,000. Compute the value of the lease liability at lease commencement. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,972.) Lease liability $
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter20: Accounting For Leases
Section: Chapter Questions
Problem 1P: Determining Type of Lease and Subsequent Accounting On January 1, 2019, Ballieu Company leases...
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Transcribed Image Text:Ivanhoe Leasing Company agrees to lease equipment to Shamrock Corporation on January 1, 2025. The following information relates
to the lease agreement.
1.
2.
3.
4.
5.
6.
The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years.
The cost of the machinery is $569,000, and the fair value of the asset on January 1, 2025, is $682,000.
At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $55,000. Shamrock
estimates that the expected residual value at the end of the lease term will be $55,000. Shamrock amortizes all of its leased
equipment on a straight-line basis.
The lease agreement requires equal annual rental payments, beginning on January 1, 2025.
The collectibility of the lease payments is probable.
Ivanhoe desires a 9% rate of return on its investments. Shamrock's incremental borrowing rate is 10%, and the lessor's
implicit rate is unknown.
(Assume the accounting period ends on December 31.)
Click here to view factor tables.
(f)
Suppose Shamrock expects the residual value at the end of the lease term to be $45,000 but still guarantees a residual of $55,000.
Compute the value of the lease liability at lease commencement. (Round present value factor calculations to 5 decimal
places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,972.)
Lease liability $
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