Question 1 On January 1, 2017, Blue Corporation signed a 5-year noncancelable le
ID: 2535225 • Letter: Q
Question
Question 1
On January 1, 2017, Blue Corporation signed a 5-year noncancelable lease for a machine. The terms of the lease called for Blue to make annual payments of $7,924 at the beginning of each year, starting January 1, 2017. The machine has an estimated useful life of 6 years and a $5,200 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Blue uses the straight-line method of depreciation for all of its plant assets. Blue’s incremental borrowing rate is 10%, and the lessor’s implicit rate is unknown.
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(b)
Question 1
On January 1, 2017, Blue Corporation signed a 5-year noncancelable lease for a machine. The terms of the lease called for Blue to make annual payments of $7,924 at the beginning of each year, starting January 1, 2017. The machine has an estimated useful life of 6 years and a $5,200 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Blue uses the straight-line method of depreciation for all of its plant assets. Blue’s incremental borrowing rate is 10%, and the lessor’s implicit rate is unknown.
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Explanation / Answer
The present value of the minimum lease payments = 7924*4.16987= $33042
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