Blue Corporation leased equipment to Larkspur, Inc. on January 1, 2025. The lease agreement called for annual rental payments $1,307 at the beginning of each year of the 3-year lease. The equipment has an economic useful life of 7 years, a fair value of $10,0 a book value of $8,000, and Blue expects a residual value of $7,500 at the end of the lease term. Blue set the lease payments with intent of earning a 6% return, though Larkspur is unaware of the rate implicit in the lease and has an incremental borrowing rate 8%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not specialized nature. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) (a) Your Answer Correct Answer Your answer is correct. Determine the nature of the lease to both Blue and Larkspur. The lease is a/an operating lease to Larkspur. The lease is a/an operating lease to Blue.
Blue Corporation leased equipment to Larkspur, Inc. on January 1, 2025. The lease agreement called for annual rental payments $1,307 at the beginning of each year of the 3-year lease. The equipment has an economic useful life of 7 years, a fair value of $10,0 a book value of $8,000, and Blue expects a residual value of $7,500 at the end of the lease term. Blue set the lease payments with intent of earning a 6% return, though Larkspur is unaware of the rate implicit in the lease and has an incremental borrowing rate 8%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not specialized nature. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) (a) Your Answer Correct Answer Your answer is correct. Determine the nature of the lease to both Blue and Larkspur. The lease is a/an operating lease to Larkspur. The lease is a/an operating lease to Blue.
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 12P: Comprehensive Landlord Company and Tenant Company enter into a noncancelable, direct financing lease...
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