Determine what type of lease this is for the lessor

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Reference no: EM131807922

The following facts pertain to a lease agreement between Royal Leasing company and Mariner Inc., a lessee:

1. Inception of lease .............................................. May 1, 2015

2. Lease term (fixed and noncancelable) ................... 5 years

3. Estimated economic life of the equipment .............. 10 years

4. Fair market value at lease inception ....................... $22,500

5. Lessor's cost of asset ........................................... $22,500

6. Bargain purchase offer .......................................... None

7. Transfer of title ..................................................... No

8. Guaranteed residual value by lessee

May 1, 2015 ............................................................ $1,000

9. Lessee's normal depreciation method........................ Straight Line

10. Lessee's incremental borrowing rate .....................,. 10%

11. Executory costs .................................................... None

12. Initial indirect costs ............................................... None

13. Collectability of rental payment ............................... Assured

14. Performance by lessor ............................................ Complete

15. Annual rental (1st payment, May 1, 2015) ................... $5,433

16. Lessor's implicit interest rate ................................... None

Required:

1. Determine what type of lease this is for the lessee.

2. Determine what type of lease this is for the lessor.

3. Provide entries for the lessee and the lessor from May 1, 2015, through May 1, 2016. Assume interest has been accrued on December 31.

4. Provide entries for the lessee and the lessor if the asset is disposed of for $10,000 by the lessor on May 1, 2020.

Reference no: EM131807922

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