Reference no: EM132462681
Problem - Doris is leasing a truck whose yearly rental is $5,189. The lease term is 3 years. The estimated economic life of the truck is 4 years. The fair value of the truck is $20,000. The cost of the truck is $15,000. The guaranteed residual value, expected to be paid, is $7000. The Incremental borrowing rate is 8%.
PV for annual lease payments of $5,189 = $14,443
PV for guaranteed residual of $7,000 = $5,557
PV Total = $20,000
Required -
a. What type of lease is this? Why?
b. Make the amortization schedule for the 3 years for the lessee and the lessor?
c. Make lessee and lessor journal entries for the three years.
d. Would an unguaranteed residual change your computations? Show all work.
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