01 Jul Intermediate Accounting IIl Accounting for Leases
Flounder Leasing Company signs a lease agreement on January 1, 2017, to lease electronic equipment to Culver Company. The term of the noncancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement:
Culver Company has the option to purchase the equipment for $15,800 upon termination of the lease.
The equipment has a cost and fair value of $150,000 to Flounder Leasing Company. The useful economic life is 2 years, with a salvage value of $15,800.
Culver Company is required to pay $5,000 each year to the lessor for executory costs.
Flounder Leasing Company desires to earn a return of 10% on its investment.
Collectibility of the payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor.
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