Riverbed Industries and Marin Inc. enter into an agreement that requires Marin Inc. to build three diesel-electric engines to Riverbed's specifications. Upon completion of the engines, Riverbed has agreed to lease them for a period of 10 years and to assume all costs and risks of ownership. The lease is non-cancelable, becomes effective on January 1, 2020, and requires annual rental payments of $421,012 each January 1, starting January 1, 2020. Riverbed's incremental borrowing rate is 8%. The implicit interest rate used by Marin and known to Riverbed is 7%. The total cost of building the three engines is $2,762,000. The economic life of the engines is estimated to be 10 years, with residual value set at zero. Riverbed depreciates similar equipment on a straight-line basis. At the end of the lease, Riverbed assumes title to the engines. Collectibility of the lease payments is probable. Click here to view factor tables.
Riverbed Industries and Marin Inc. enter into an agreement that requires Marin Inc. to build three diesel-electric engines to Riverbed's specifications. Upon completion of the engines, Riverbed has agreed to lease them for a period of 10 years and to assume all costs and risks of ownership. The lease is non-cancelable, becomes effective on January 1, 2020, and requires annual rental payments of $421,012 each January 1, starting January 1, 2020. Riverbed's incremental borrowing rate is 8%. The implicit interest rate used by Marin and known to Riverbed is 7%. The total cost of building the three engines is $2,762,000. The economic life of the engines is estimated to be 10 years, with residual value set at zero. Riverbed depreciates similar equipment on a straight-line basis. At the end of the lease, Riverbed assumes title to the engines. Collectibility of the lease payments is probable. Click here to view factor tables.
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...
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