Reference no: EM132489316

Ivanhoe Co. leased a machine to Dains Co. Assume the lease payments were made on the basis that the residual value was guaranteed and Ivanhoe gets to recognize all the profits. At the end of the lease term, before the lessee transfers the asset to the lessor, the leased asset and obligation accounts have the following balances:

Leased equipment                                              $300000

Less accumulated depreciation-capital lease285000 $ 15000

Interest payable                                               $ 1420

Lease liability13480                                           $15000

Question 1: If, at the end of the lease, the fair value of the residual value is $10800, what gain or loss should be recorded?

Option 1: $2780 loss

Option 2: $4200 loss

Option 3: $2780 gain

Option 4: $10800 gain