Reference no: EM132558997
Question - Sales -Type Lease with Residual Value
On January 1, 2019, Rainbow Corp. leased a piece of production equipment from Steelhead Company under a 6-year lease, with payments due at the beginning of each year. Steelhead manufactured the equipment at a cost of $400,000 and its typical sales price is $500,000. The annual Lease payment was computed based on an implicit interest rate of 4%. Because its useful life is 8 years, there is an expected residual value of the equipment of $50,000 at the end of the lease.
Required -
a. Calculate the payment that Steelhead will charge to Rainbow, when considering that Steelhead will recover a portion of its investment through the residual value
b. Prepare Steelhead's amortization table, including the value of the residual at the end of the lease.
c. Prepare the JE's that steelhead will record on January 1, 2019 to initially record the lease.
d. Assume that Rainbow was not required to guarantee any residual value at the end of the lease. What would be Rainbow's JE at January 1, 2019 to initially record the lease?
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Question - Sales -Type Lease with Residual Value
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