The following facts pertain to a noncancelable lease agreement between Sandhill Leasing Company and Teal...
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Accounting
The following facts pertain to a noncancelable lease agreement between Sandhill Leasing Company and Teal Company, a lessee.
| Inception date: | May 1, 2017 | ||
| Annual lease payment due at the beginning of | |||
| each year, beginning with May 1, 2017 | $19,373.99 | ||
| Bargain-purchase option price at end of lease term | $4,400 | ||
| Lease term | 5 | years | |
| Economic life of leased equipment | 10 | years | |
| Lessors cost | $62,000 | ||
| Fair value of asset at May 1, 2017 | $85,000 | ||
| Lessors implicit rate | 9 | % | |
| Lessees incremental borrowing rate | 9 | % |
The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. The lessee assumes responsibility for all executory costs. The expected residual value of the equipment at the end of 5 (10) years is $12,000 ($0).
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