The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Pina Company, a lessee. Commencement date January 1, Annual lease payment due at the beginning of each year, beginning with January 1, $104,218 Residual value of equipment at end of lease term, guaranteed by the lessee $51,000 Expected residual value of equipment at end of lease term $46,000 Lease term 6 years Economic life of leased equipment 6 years Fair value of asset at January 1, $540,000 Lessor’s implicit rate 9 % Lessee’s incremental borrowing rate 9 % The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased equipment. (c) (c) Incorrect answer icon Your answer is incorrect. Suppose Pina received a lease incentive of $5,000 from Faldo Leasing to enter the lease. How would the initial measurement of the lease liability and right-of-use asset be affected? Right-of-use asset $enter a dollar amount Lease Liability $enter a dollar amount What if Pina prepaid rent of $5,000 to Faldo? Right-of-use asset $enter a dollar amount Lease Liability $enter a dollar amount
The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Pina Company, a lessee. Commencement date January 1, Annual lease payment due at the beginning of each year, beginning with January 1, $104,218 Residual value of equipment at end of lease term, guaranteed by the lessee $51,000 Expected residual value of equipment at end of lease term $46,000 Lease term 6 years Economic life of leased equipment 6 years Fair value of asset at January 1, $540,000 Lessor’s implicit rate 9 % Lessee’s incremental borrowing rate 9 % The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased equipment. (c) (c) Incorrect answer icon Your answer is incorrect. Suppose Pina received a lease incentive of $5,000 from Faldo Leasing to enter the lease. How would the initial measurement of the lease liability and right-of-use asset be affected? Right-of-use asset $enter a dollar amount Lease Liability $enter a dollar amount What if Pina prepaid rent of $5,000 to Faldo? Right-of-use asset $enter a dollar amount Lease Liability $enter a dollar amount
Financial Accounting: The Impact on Decision Makers
10th Edition
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Gary A. Porter, Curtis L. Norton
Chapter10: Long-term Liabilities
Section: Chapter Questions
Problem 10.5P
Related questions
Question
The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Pina Company, a lessee.
| Commencement date | January 1, | ||
| Annual lease payment due at the beginning of each year, beginning with January 1, |
$104,218 | ||
| Residual value of equipment at end of lease term, guaranteed by the lessee |
$51,000 | ||
| Expected residual value of equipment at end of lease term | $46,000 | ||
| Lease term | 6 | years | |
| Economic life of leased equipment | 6 | years | |
| Fair value of asset at January 1, | $540,000 | ||
| Lessor’s implicit rate | 9 | % | |
| Lessee’s incremental borrowing rate | 9 | % |
The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased equipment.
(c)
(c)
Incorrect answer icon
Your answer is incorrect.
Suppose Pina received a lease incentive of $5,000 from Faldo Leasing to enter the lease. How would the initial measurement of the lease liability and right-of-use asset be affected?
What if Pina prepaid rent of $5,000 to Faldo?
| Right-of-use asset | $enter a dollar amount | |
|---|---|---|
| Lease Liability | $enter a dollar amount |
What if Pina prepaid rent of $5,000 to Faldo?
| Right-of-use asset | $enter a dollar amount | |
|---|---|---|
| Lease Liability | $enter a dollar amount |
Expert Solution
Step 1
Given:
| Commencement date | January 1, | ||
| Annual lease payment due at the beginning of each year, beginning with January 1, |
$104,218 | ||
| Residual value of equipment at end of lease term, guaranteed by the lessee |
$51,000 | ||
| Expected residual value of equipment at end of lease term | $46,000 | ||
| Lease term | 6 | years | |
| Economic life of leased equipment | 6 | years | |
| Fair value of asset at January 1, | $540,000 | ||
| Lessor’s implicit rate | 9 | % | |
| Lessee’s incremental borrowing rate | 9 | % |
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
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
Financial Accounting: The Impact on Decision Make…
Accounting
ISBN:
9781305654174
Author:
Gary A. Porter, Curtis L. Norton
Publisher:
Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning
Financial Accounting: The Impact on Decision Make…
Accounting
ISBN:
9781305654174
Author:
Gary A. Porter, Curtis L. Norton
Publisher:
Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning