Lessee Ltd. an U.S. company that applies U.S. GAAP, leased equipment from Lessor

Question

Lessee Ltd. an U.S. company that applies U.S. GAAP, leased equipment from Lessor Inc. on January 1, 2007, for a period of three years. Lease payments of $100,000 are due to Lessor Inc. each year. Other expenses (e.g. insurance, taxes, maintenance) are also to be paid by Lessee Ltd. and amount to $2,000 per year. The lessor did not incur any initial direct cost. The lease contains no purchase or renewal options and the equipment reverts back to Lessor Inc. on the expiration of the lease. The remaining useful life of the equipment is four years. The fair value of the equipment is four years. The fair value of the equipment at lease inception is $265,000. Lessee Ltd. has guaranteed $20,000 as teh residual value at the end of the lease term. The $20,000 represents the expected value of the leased equipment to the lessee at the end of the lease term. The salvage value of the equipment is expected to be $2,000 after the end of its economic life. The lessee's incremental borrowing rate is 11 percent (Lessor's implicit rate is 10 percent and is calculabe by the lessee form the lease agreement).

Explanation / Answer

SOLUTION:

refer to the link u ll definitely get help from there..
http://www.deloitte.com/assets/Dcom-UnitedStates/Local%20Assets/Documents/us_11_6c_lessee_ltd_122311.pdf

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