Lessee Company on January 1, 2010, enters into a 5-year non-cancelable lease, with two renewal...

Question

Lessee Company on January 1, 2010, enters into a 5-year non-cancelable lease,
with two renewal options of one year each, for equipment having an estimated
useful life of 8 years. Lessee's incremental bo
owing rate is 10%. Lessee uses
the straight-line method to depreciate its assets. The lease contains the following
provisions:
1. Rental payments of $80,000 including 8,000 for property taxes, payable at the
eginning of each six-month period.
2. A termination penalty assuring renewal of the lease for a period of two years
after expiration of the initial lease term.
3. An option allowing the lessor to extend the lease one year beyond the last
enewal exercised by the lessee.
4. A guarantee by lessee that lessor will realize $40,000 from...

Robert · Accepted Answer

Lessee Company on January 1, 2010, enters into a 5-year non-cancelable lease, 
with two renewal options of one year each, for equipment having an estimated 
useful life of 8 years. Lessee's incremental borrowing rate is 10%. Lessee uses 
the straight-line method to depreciate its assets. The lease contains the following 
provisions: 
1. Rental payments of $80,000 including 8,000 for property taxes, payable at the 
beginning of each six-month period. 
2. A termination penalty assuring renewal of the lease for a period of two years 
after expiration of the initial lease term. 
3. An option allowing the lessor to extend the lease one year beyond the last 
renewal exercised by the lessee. 
4. A guarantee by lessee that lessor will realize $40,

Lessee Company on January 1, 2010, enters into a 5-year non-cancelable lease, with two renewal options of one year each, for equipment having a estimated useful life of 8 years. Lessee's incremental...

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