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Cheyenne Leasing Company agrees to lease equipment to Ayayai Corporation on January 1, 2020

Accounting

Cheyenne Leasing Company agrees to lease equipment to Ayayai 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 $575,000, and the fair value of the asset on January 1, 2020, is $755,000. 3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $50,000. Ayayai estimates that the expected residual value at the end of the lease term will be 50,000. Ayayai 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. Cheyenne desires a 9% rate of return on its investments. Ayayai's incremental borrowing rate is 10%, and the lessor's implicit rate is unknown. 
(Assume the accounting period ends on December 31.) 
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1r (a) 
Your answer is correct. 
Discuss the nature of this lease for both the lessee and the lessor. 
This is Rfinance lease 
v ) for Ayayai. 
This is sTsales-type lease v J for Cheyenne. 
(SNOW LIST Of ACCOUNTS SHOW SOLUTION 
1 LINK TO TEXT 1 LINK TO TEXT 
'yr (b) 
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Attempts: 3 of 5 used 
Calculate the amount of the annual rental payment required. (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.) Annual rental payment 5 IJ 
 

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