Reference no: EM132483867
Question - Vaughn Leasing Company agrees to lease equipment to Bramble Corporation on January 1, 2020. The following information relates to the lease agreement.
1. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years.
2. The cost of the machinery is $520,000, and the fair value of the asset on January 1, 2020, is $737,000.
3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $60,000. Bramble estimates that the expected residual value at the end of the lease term will be 60,000. Bramble amortizes all of its leased equipment on a straight-line basis.
4. The lease agreement requires equal annual rental payments, beginning on January 1, 2020.
5. The collectibility of the lease payments is probable.
6. Vaughn desires a 10% rate of return on its investments. Bramble's incremental borrowing rate is 11%, and the lessor's implicit rate is unknown. (Assume the accounting period ends on December 31.)
Required - Calculate the amount of the annual rental payment required.
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