Technoid Inc. sells computer systems. Technoid leases computers to Lone Star Com

Question

Technoid Inc. sells computer systems. Technoid leases computers to Lone Star Company on January 1, 2018. The manufacturing cost of the computers was $12 million. This noncancelable lease had the following terms: Lease payments: $2,466,754 semiannually; first payment at January 1, 2018; remaining payments at June 30 and December 31 each year through June 30, 2022. Lease term: five years (10 semiannual payments). No residual value; no purchase option. Economic life of equipment: five years. Implicit interest rate and lessee's incremental borrowing rate: 5% semiannually. Fair value of the computers at January 1, 2018: $20 million. Technoid would account for this as:

Explanation / Answer

Answer:

1.For Technoid it is back rent it is for the full monetary existence of benefit and having no lingering value and lessor retains the ownership of resource.

2.for credit star it is likewise back rent.

3. The remarkable rent risk for credit star on 30 th June 2018 is 20,00,000 dollar-rent installment of first January 2018 i,e 2466754=17533246 dollar.

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