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On January 1, Lessor Company leases equipment to Lessee Company. The lease term is 8...

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Accounting

On January 1, Lessor Company leases equipment to Lessee Company. The lease term is 8 years; the economic life of the asset is 12 years. The cost of the equipment is $36,000; its fair value is $61,000. Lessors implicit rate is 7%; Lessees incremental borrowing rate is 7%. Lease payments of $9000 are due at the beginning of each year (PV $57,510). At the end of the lease term, the asset is expected to have a residual value of $6000 (PV $3492), none of which is guaranteed by Lessee.

Which of the following is true?

a. CGS for Lessor is $36,000.

b. Sales revenue for Lessor is $61,000.

c. Interest expense for Lessee at the end of the first year is the beginning liability times 7%.

d. Interest expense for Lessee at the end of the first year is the ending liability times 7%.

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