On January 1, 2022, Durant Corporation agrees to lease equipment to Irving Corporation. The term of the lease is 5 years, and the equipment has an estimated economic life of 7 years. Durant's cost of the machinery is $475,000 and the machinery's fair value is $600,000. The lease has no renewal or purchase options, and requires 5 annual rental payments, beginning January 1, 2022. The machinery is not of a specialized nature, and reverts back to Durant at the end of the lease. Durant expects the asset to have a residual value of $55,000 at the end of the lease. The residual value is not guaranteed. Durant's implicit rate (known to Irving) is 10%. Irving's incremental borrowing rate is 5%. Collectibility of the lease payments is probable. Required a. Calculate the amount of the annual rental payment required. b. What type of lease is this to Irving? To Durant? Explain and show calculations. c. Compute the value of the lease liability and prepare all of Irving's required journal entries for 2022.
On January 1, 2022, Durant Corporation agrees to lease equipment to Irving Corporation. The term of the lease is 5 years, and the equipment has an estimated economic life of 7 years. Durant's cost of the machinery is $475,000 and the machinery's fair value is $600,000. The lease has no renewal or purchase options, and requires 5 annual rental payments, beginning January 1, 2022. The machinery is not of a specialized nature, and reverts back to Durant at the end of the lease. Durant expects the asset to have a residual value of $55,000 at the end of the lease. The residual value is not guaranteed. Durant's implicit rate (known to Irving) is 10%. Irving's incremental borrowing rate is 5%. Collectibility of the lease payments is probable. Required a. Calculate the amount of the annual rental payment required. b. What type of lease is this to Irving? To Durant? Explain and show calculations. c. Compute the value of the lease liability and prepare all of Irving's required journal entries for 2022.
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 3E: Lessee Accounting Issues Sax Company signs a lease agreement dated January 1, 2019, that provides...
Related questions
Question
4
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT