Bridgeport Leasing Company agrees to lease equipment to Indigo Corporation on January 1, 2025. The...
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Bridgeport Leasing Company agrees to lease equipment to Indigo Corporation on January 1, 2025. The following information relates to the lease agreement. 1. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. 2. The cost of the machinery is $523,000, and the fair value of the asset on January 1, 2025, is $758,000. 3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $60,000. Indigo estimates that the expected residual value at the end of the lease term will be $60,000. Indigo amortizes all of its leased equipment on a straight-line basis. 4. The lease agreement requires equal annual rental payments, beginning on January 1, 2025. 5. The collectibility of the lease payments is probable. 6. Bridgeport desires a 10% rate of return on its investments. Indigo's incremental borrowing rate is 11%, and the lessor's implicit rate is unknown. (Assume the accounting period ends on December 31.)
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