Determining the Implicit Rate in the Lease. Assume that you are given the following information for a 5-year lease (with payments due on January 1 of each year): • The lease payments are $60,000 per year. • The fair value of the underlying asset is $500,000. • The deferred initial indirect costs of the lessor are equal to $25,000. The lessor's estimated residual value in the underlying asset is $350,000. What is the implicit rate in the lease?

Determining the Implicit Rate in the Lease. Assume that you are given the following information for a 5-year lease (with payments due on January 1 of each year): • The lease payments are $60,000 per year. • The fair value of the underlying asset is $500,000. • The deferred initial indirect costs of the lessor are equal to $25,000. The lessor's estimated residual value in the underlying asset is $350,000. What is the implicit rate in the lease?

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 10GI: Owens Company leased equipment for 4 years at 50,000 a year with an option to renew the lease for 6...

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Information has been gathered on the following lease: The fair value of the equipment is $600,000 at the beginning of the lease. The lease term is 5 years. Annual lease payments are $125,000, and payments are due at the beginning of each lease year. The lease contains a purchase option for the asset of $16,000 at the end of the lease term which is expected to be exercised. The lessor's implicit rate of interest in the lease is 6%; the lessee's incremental borrowing rate is 8%. Required: Assuming the lessee follows IFRS, calculate the value of the right-of-use asset for the lease and prepare the initial journal entry for the lessee. Round amounts to the nearest dollar.
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Ajax Capital has determined that the amount to be amortized on a security system is $240,000. What annual lease payment must Ajax (lessor) require from the lessee if the required rate of return is 18%? Assume that the lease payments will be made at the beginning of each of the 5 years of the lease agreement and that the marginal tax rate is 30%.