Reference no: EM13129462
BLG Corp. is a manufacturer of truck trailers. On January 1, 2011, BLG Corp. leases ten trailers to Vaughn Company under a six-year noncancelable lease agreement. The following information about the lease and the trailers is provided:
1. Equal annual payments that are due on December 31 each year provide BLG Corp. with an 8% return on net investment
2. Titles to the trailers pass to Vaughn at the end of the lease.
3. The fair value of each trailer is $50,000. The cost of each trailer to BLG Corp. is $45,000. Each trailer has an expected useful life of nine years.
4. Collectibility of the lease payments is reasonably predictable and there are no important uncertainties surrounding the amount of costs yet to be incurred by BLG.
Instructions
(a) What type of lease is this for the lessor? Discuss.
(b) Calculate the annual lease payment. (Round to nearest dollar.)
(c) Prepare a lease amortization schedule for BLG Corp. for the first three years.
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