Question

Alt Corporation enters into an agreement with Yates Rentals Co. on January 1, 2021 for the...

Alt Corporation enters into an agreement with Yates Rentals Co. on January 1, 2021 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement:

(a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $574,864 are due on January 1 of each year.

(b) The fair value of the machine on January 1, 2021, is $1,600,000. The machine has a remaining economic life of 10 years, with no salvage value. The machine reverts to the lessor upon the termination of the lease.

(c) Alt depreciates all machinery it owns on a straight-line basis.

(d) Alt’s incremental borrowing rate is 10% per year. Alt does not have knowledge of the 8% implicit rate used by Yates.

(e) Immediately after signing the lease, Yates finds out that Alt Corp. is the defendant in a suit which is sufficiently material to make collectibility of future lease payments doubtful.


If the present value of the future lease payments is $1,600,000 at January 1, 2021, what is the amount of the reduction in the lease liability for Alt Corp. in the first full year of the lease if Alt Corp. accounts for the lease as a finance lease? (Rounded to the nearest dollar.)


$414,852


$574,864


$472,350


$519,585

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Alt Corporation enters into an agreement with Yates Rentals Co. on January 1, 2013 for the...
Alt Corporation enters into an agreement with Yates Rentals Co. on January 1, 2013 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement: (a)          The term of the noncancelable lease is 3 years with no renewal option. Payments of $310,426 are due on December 31 of each year. (b)          The fair value of the machine on January 1, 2013, is $800,000. The machine has a remaining economic life...
Sandhill Corporation enters into an agreement with Yates Rentals Co. on January 1, 2021 for the...
Sandhill Corporation enters into an agreement with Yates Rentals Co. on January 1, 2021 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement: (a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $498572 are due on January 1 of each year. (b) The fair value of the machine on January 1, 2021, is $1400000. The machine has a remaining economic life...
Wildhorse Corporation enters into an agreement with Yates Rentals Co. on January 1, 2021 for the...
Wildhorse Corporation enters into an agreement with Yates Rentals Co. on January 1, 2021 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement: (a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $730052 are due on January 1 of each year. (b) The fair value of the machine on January 1, 2021, is $2050000. The machine has a remaining economic life...
On January 1, 2017, Marlene Corp. enters into an agreement with Dietrich Rentals Inc. to lease...
On January 1, 2017, Marlene Corp. enters into an agreement with Dietrich Rentals Inc. to lease a machine from them. Both corporations adhere to ASPE. The following data relate to the agreement: 1. The term of the non-cancellable lease is three years with no renewal option. Payments of $271,622 are due on December 31 of each year. 2. The fair value of the machine on January 1, 2017, is $700,000. The machine has a remaining economic life of 10 years,...
On January 1, 2021, Pharoah, Inc. signs a 10-year noncancelable lease agreement to lease a storage...
On January 1, 2021, Pharoah, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Holt Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement. (a) The agreement requires equal rental payments at the beginning each year. (b) The fair value of the building on January 1, 2021 is $5600000; however, the book...
Please answer all a,b,c! Eubank Company, as lessee, enters into a capitalized lease agreement on January...
Please answer all a,b,c! Eubank Company, as lessee, enters into a capitalized lease agreement on January 1, 2018, for equipment. The following data are relevant to the lease agreement: The term of the non-cancelable lease is 4 years with no renewal option. Payments of $782,757 are made at the beginning of each year. The present value of the minimum lease payments equals $2,800,000. The fair value of the equipment on 1/1/18 is $2,800,000. The equipment has an economic life of...
January 1, 2018, Pharoah, Inc. signs a 10-year noncancelable lease agreement to lease a storage building...
January 1, 2018, Pharoah, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Holt Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement.(a) The agreement requires equal rental payments at the beginning each year.(b) The fair value of the building on January 1, 2018 is $6,200,000; however, the book value to Holt...
Crane Corp. is a manufacturer of truck trailers. On January 1, 2021, Crane Corp. leases 10...
Crane Corp. is a manufacturer of truck trailers. On January 1, 2021, Crane Corp. leases 10 trailers to Bramble Company under a 5-year noncancelable lease agreement. The following information about the lease and the trailers is provided: 1. Equal annual payments that are due on January 1 each year provide Crane Corp. with an 9% return on net investment. 2. Titles to the trailers pass to Bramble at the end of the lease. 3. The fair value of each trailer...
. Eubank Company, as the lessee, enters into a lease agreement on January 1, 2020, for...
. Eubank Company, as the lessee, enters into a lease agreement on January 1, 2020, for equipment. The following data are relevant to the lease agreement: 1.   The term of the noncancelable lease is 4 years. Payments of $978,446 are due on January 1 of each year. 2.   The fair value of the equipment on January 1, 2020 is $3,6000,000. The equipment has an economic life of 6 years with no salvage value. 3.   Eubank depreciates similar machinery it owns...
On January 1, 2017, Tamarisk Company leased equipment to Vaughn Corporation. The following information pertains to...
On January 1, 2017, Tamarisk Company leased equipment to Vaughn Corporation. The following information pertains to this lease. 1. The term of the noncancelable lease is 6 years, with no renewal option. The equipment reverts to the lessor at the termination of the lease. 2. Equal rental payments are due on January 1 of each year, beginning in 2017. 3. The fair value of the equipment on January 1, 2017, is $184,000, and its cost is $147,200. 4. The equipment...