Business, 28.02.2021 16:40 jay13212

On January 1, Year 1, Company A (the lessee) entered into an 8-year lease agreement with Company B (the lessor) for industrial equipment. Annual lease payments of $14,378 are payable at the end of each year. Company A's incremental borrowing rate is 7%, and the implicit rate in the lease is 5%, which is known to Company A. On January 1, Year 1, the fair value of the equipment is $125,000 and its estimated useful life is 15 years. Company A depreciates its long-lived assets in accordance with the straight-line depreciation method. At lease commencement date, Company B estimates that the total residual value of the equipment at the end of the lease term will be $47,388. Company A guarantees $40,000 of the residual value of the equipment. However, due to expected high usage of the equipment, Company A estimates that the value of the equipment at the end of the lease term will be only $30,000. Information on present value factors is as follows: Present value of $1 at 5% for 8 periods0.6768
Present value of $1 at 7% for 8 periods0.5820
Present value of an annuity of $1 at 5% for 8 periods6.4632
Present value of an annuity of $1 at 7% for 8 periods5.9713
Enter the appropriate amounts in the designated cells. Enter all amounts as positive values. Round all amounts to the nearest whole number. If the amount is zero, enter a zero (0). Enter all percentages as a percentage, not a decimal.

For item 2, select the appropriate lease classification option by Company A from the option list provided.

Item

Amount

1. The discount rate for the lease used by Company A
2. Classification of the lease by Company A
3. The amount at which the lease liability was recognized in Company A's financial statements at the lease commencement date
4. The amount of interest expense recognized by Company A in Year 1
5. The carrying amount of the right-of-use asset in Company A's December 31, Year 1, financial statements
6. The amount of Company A's lease liability on December 31, Year 1, after the first required payment was made
7. The amount of the current portion of the lease liability as it is presented in Company A's December 31, Year 1, financial statements

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On January 1, Year 1, Company A (the lessee) entered into an 8-year lease agreement with Company B (...

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