Estimates that the retail sales value

Assignment Help Financial Management

Reference no: EM132018083

On 1/1//2015, XYZ leases a machine from Super LeaseCo for two years. Super LeaseCo can purchase the machine for $340,000 but estimates that the retail sales value (i.e. fair value) of the machine is 400,000. Super Lease Co estimates that the machine will be worth $20,000 after two year, and has priced the lease using an implict rate of 5%. The annual lease payment is $195,586, payable at the BEGINNING of each year (1/1/15 and 12/31/15). XYZ does NOT know Super LeaseCo’s implict rate and normally borrows money at 6%. They estimate that the fair value of the machine is $397,903. The machine has a useful life of 4 years, with no salvage value at the end of those 4 years. XYZ records amortization using the straight-line method. Required - Prepare all required journal entries for XYZ and Super LeaseCo under the following independent assumptions: (Round all numbers to the nearest dollar) Assumption 1. Assume that XYZ estimates that the residual value of the machine at the end of the lease will be $20,000 and they have agreed to guarantee a residual value of $20,000. You should also assume that the asset is returned to Super LeaseCo on 12/31/16 and that its actual fair value at that date is only $15,000. As a result, XYZ must pay an additional $5,000 at the end of the lease. Assumption 2. Assume that XYZ estimates that the residual value of the machine at the end of the lease will be $180,000 and they have agreed to guarantee a HIGHER residual value of $20,000. You should also assume that the asset is returned to Super LeaseCo on 12/31/16 and that its actual fair value at that date is only $15,000. As a result, XYZ must pay an additional $5,000 at the end of the lease. Assumption 3. Assume that XYZ has NOT guaranteed any residual value. You should assume that the asset is returned to Super LeaseCo on 12/31/16 and that its actual fair value at that date is $15,000. Note: Assume Lease Test 5 is satisfied.

Reference no: EM132018083

Questions Cloud

Filing a false disability claim is a morale hazard : Burning the car on purpose is a morale hazard. Filing a false disability claim is a morale hazard.

Compute the depreciation schedule for the office furniture : Compute the depreciation schedule for the office furniture using Straight Line depreciation with a 10-year depreciable life

What is the internal rate of return of cash flows in dollars : What is the net present value of the cash flows in dollars? What is the internal rate of return of the cash flows in dollars?

Under the current salary payment scheme : Why might one stockbroker be willing to help another under the current salary payment scheme? What do they get out of it?

Estimates that the retail sales value : Super LeaseCo can purchase the machine for $340,000 but estimates that the retail sales value (i.e. fair value) of the machine is 400,000.

Is this discount or premium bond : Calculate the price of a $1,000 bond, offering a 8% coupon payment with 30 years left to maturity. Is this a discount or premium bond?

Discuss his insurance policies : You recently met with your client, Tripp, to discuss his insurance policies.

Makes the net present value of an investment : The discount rate that makes the net present value of an investment exactly equal to zero is called the:

Reported earnings rather than cash flows : In most capital budgeting decisions the emphasis should be on reported earnings rather than cash flows.

User Account

All Pages