YOUR Company leases a machine from My Company on July 1, 20X1. Lease payments of $14,806 are due each July 1, beginning July 1,20×1. The lease qualifies as a finance lease for YOUR Company and a sales-type lease for My Company. The Incremental borrowing rate for YOUR Company is 10% The lessor’s implicit rate is 8%. The carrying value on the books of MY Company is $70,000 The lease term is 8 years. The useful life of the machine ls 10 years. The fair value of the machine at the inception of the lease is $100,000. The expected residual value at the end of 8 years is $15,000 and at the end of 10 years is $6,000. The lessee guarantees $9,000 of the salvage value. YOUR Company capitalized the lease at that value, $91.892. Does the lessee know the lessor’s implicit rate? (For full credit support your answer) YES NO
