On 1/1/16, R-U Ready leased a car with a FMV of $45,000 for 5 years with...

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Accounting

On 1/1/16, R-U Ready leased a car with a FMV of $45,000 for 5years with a commitment to make 5 annual payments of $8,000 withthe first payment due immediately and the remaining payments due on12/31 of each year. R-U ready’s incremental borrowing rate is 12%.The estimated life of the car is 10 years. The car ownership doesnot transfer to R-U Ready at the end of the lease and there is nobargain purchase option.
Requirement: Present the accounts and dollar amountsthat would appear on comparative balance sheets and incomestatements for the years ending 12/31/16 and 12/31/15.

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A lease is a legal agreement by which the owner of a assetlessor allows a party lessee to use the asset for a specificperiod in exchange for periodic payments to the lessor calledlease rentalsAn operating lease is very similar to an asset rental It letsthe lessee use the leased asset for a specific period of timewhich is generally less compared to the assets useful See Answer

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