Federated fabrications leased tooling machine

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Reference no: EM131204870

Federated Fabrications leased a tooling machine on January 1, 2016, for a three-year period ending December 31, 2018. The lease agreement specified annual payments of $39,000 beginning with the first payment at the inception of the lease, and each December 31 through 2017. The company had the option to purchase the machine on December 30, 2018, for $48,000 when its fair value was expected to be $63,000. The machine's estimated useful life was six years with no salvage value. Federated depreciates assets by the straight-line method. The company was aware that the lessor’s implicit rate of return was 10%, which was less than Federated’s incremental borrowing rate.

Reference no: EM131204870

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