Ownership of the lease does not transfer at the end

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Reference no: EM133610426

Question: Flint Corporation leased equipment to Tamarisk, Inc. on January 1, 2025. The lease agreement called for annual rental payments of $1,250 at the beginning of each year of the 3-year lease. The equipment has an economic useful life of 7 years, a fair value of $9,000, a book value of $7,000, and Flint expects a residual value of $6,500 at the end of the lease term. Flint set the lease payments with the intent of earning a 6% return, though Tamarisk is unaware of the rate implicit in the lease and has an incremental borrowing rate of 8%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature.

Reference no: EM133610426

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