Blossom Leasing Company agrees to lease equipment to Blue Corporation on January 1, 2020. 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 $520,000, and the fair value of the asset on January 1, 2020, is $737,000.|
|3.||At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $60,000. Blue estimates that the expected residual value at the end of the lease term will be 60,000. Blue amortizes all of its leased equipment on a straight-line basis.|
|4.||The lease agreement requires equal annual rental payments, beginning on January 1, 2020.|
|5.||The collectibility of the lease payments is probable.|
|6.||Blossom desires a 10% rate of return on its investments. Blue’s incremental borrowing rate is 11%, and the lessor’s implicit rate is unknown.|
(Assume the accounting period ends on December 31.)
Compute the value of the lease liability to the lessee. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,972.)
|Present value of minimum lease payments||
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