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Guarantee residual value

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Reference no: EM132044114

A. Company A-agreement with B

B. Lease equipment begin Jan 1, 2009-2012 -4 year

C. Equipment has 5 years economic life

D. Lease payment $10,000 include $1,000 insurance at begin of each year.

E. Equipment Fair market value $34,000 salvage $500 at end of useful life. Residual value--$5,325

F. Lessee-incremental rate 8%.

Lessor-imputed rate 12%==> lessee knows.

Require:

1. If lessee does not guarantee residual value, is this a capital lease or operating lease. Show work

2. Journal entry Jan 1, 2009, and Dec 31, 2009

3. If lease does guarantee residual value. Compute the "Equipment under capital lease" and " Accumulated Amortization" Second year-end

Reference no: EM132044114

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