C of 10 years with an unguaranteed residual value of 35000

Reference no: EM13485753

Assume that on January 1, 2014, Yard Waste Corp. signs a 5-year noncancelable lease agreement to lease an industrial-strength mulching machine. The following information pertains to this lease agreement.

1. The agreement requires equal rental payments of $96,680 beginning on December 31, 2014.

2. The fair value of the machine on January 1, 2014, is $400,000.

3. The machine has an estimated economic life of 10 years, with an unguaranteed residual value of $35,000. The lease contains a bargain purchase price of $2,000.Yard Waste depreciates similar machines on the straight-line method.

4. The lease is nonrenewable. At the termination of the lease, the machine reverts to the lessor.

5. Yard Waste's incremental borrowing rate is 8% per year. The lessor's implicit rate is not known by Yard Waste.

6. The yearly rental payment includes $1,563.19 of executory costs related to insurance on the machine

Reference no: EM13485753

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