lease accounting chapter 24 411372
Lessee Corp. entered into a non cancellable agreement with Lessor Corp. on May 15, 2008 to lease equipment manufactured by Lessor according to Lessee’s specifications. If Lessee had purchased the equipment outright from Lessor, it would have cost Lessee $100, although Lessor’s cost was only $80. The following information is available. <?xml:namespace prefix = o ns = “urn:schemas microsoft com:office:office” />
Lease term May 15, 2008 ‘ May 14, 2012
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lease accounting chapter 24 411372
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Economonic life of equipment 6 years
Annual rental payment $25.8
1st payment due May 15, 2008
Estimated residual value, unguaranteed $13
Interest rate implied in lease 10%
Title transfer in lease? No
n = 4, I = 10
PV factor, lump sum 0.68301
PV factor, annuity due 3.48685
Lessee and Lessor Corp. year endsDecember 31
Instructions
(a) Discuss the nature of this lease to Lessee Corp.
(b) Discuss the nature of this lease to Lessor Corp.
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