Timmy Incorporated leases a piece of equipment to AppleCorporation on January 1, 2017.
1. Lease term in years. 4
2. Fair Value of equipment 25,100
3. Book Value of equipment 20,100
4. Lease agreement requires equal annual lease payments,beginning on January 1, 2017 $4,952
Assume accounting periods ends December 31.
5. Estimated economic life of the equipment in years 6
Unguaranteed Residual Value at end of lease term $8100
Expected Residual Value at end of lease term. $8100
6. Lessor and Lessee use straight-line depreciation for allassets.
7. Apple incremental rate of interest. 8%
Timmy implicit rate of interest ( Known to Apple) 5%
8. There is no bargain purchase option, ownership of the leasedoes not transfer at the end of the lease term, and the asset isnot of a specialized nature.
Calculate depreciation expense for the lessor.
