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Buffalo Leasing Company signs an agreement on January 1, 2017, to lease equipment to Cole Company. The following information relates to this agreement.
| 1. | The term of the noncancelable lease is 6 years with no renewal option. The equipment has an estimated economic life of 6 years. | |
| 2. | The cost of the asset to the lessor is $278,000. The fair value of the asset at January 1, 2017, is $278,000. | |
| 3. | The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $21,770, none of which is guaranteed. | |
| 4. | Cole Company assumes direct responsibility for all executory costs. | |
| 5. | The agreement requires equal annual rental payments, beginning on January 1, 2017. | |
| 6. | Collectibility of the lease payments is reasonably predictable. There are no important uncertainties surrounding the amount of costs yet to be incurred by the lessor.
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Question & Answer: Buffalo Leasing Company signs an agreement on January 1, 2017, to lea…..
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a. Prepare an amortization schedule that would be suitable for the lessor for the lease term. b. Assuming the lessor desires a 9% rate of return on its investment, calculate the amount of the annual rental payment required |
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