What type of lease is this for talkaholics

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Reference no: EM131214375

Talkaholics Inc. leased a satellite transmission device from ACME Satellites on January 1, 2016. ACME paid $1,000,000 for the satellite which retails for $1,307,362.

The lease contained the following information:

Lease term 3 years (6 semiannual periods)

Semiannual rental payments $246,000 made at the beginning of each period

Economic life of the asset 4 years

Implicit interest rate (known to Lessee) 12%

Lessee’s incremental rate 10%

Unguaranteed residual value $80,000

Regulatory fees paid by lessor $6,000/twice each year (included in rental payments)

Lessor’s initial direct costs $9,000

Contingent rental payments Additional $8,000 if revenues exceed a specified base

REQUIRED:

What type of lease is this for Talkaholics? Explain.

What type of lease is this for ACME? Explain.

Prepare the appropriate entries for both Talkaholics and ACME for 2016.

Prepare the appropriate entries for both Talkaholics and ACME on December 31, 2019 (the end of the lease term), assuming the device is returned to the lessor and its actual residual value is $14,000 on that date.

Reference no: EM131214375

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