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$ 17000 $ 1620 $17000 Blossom Co. leased a machine to Dains Co. Assume the lease

ID: 2589568 • Letter: #

Question

$  17000

$ 1620

$17000

Blossom Co. leased a machine to Dains Co. Assume the lease payments were made on the basis that the residual value was guaranteed and Blossom gets to recognize all the profits. At the end of the lease term, before the lessee transfers the asset to the lessor, the leased asset and obligation accounts have the following balances:
Leased equipment $500000 Less accumulated depreciation—capital lease 483000

$  17000

Interest payable

$ 1620

Lease liability 15480

$17000


If, at the end of the lease, the fair value of the residual value is $12800, what gain or loss should Blossom record?

$4200 loss $2580 loss $12800 gain $2580 gain

Explanation / Answer

Calculate gain or loss to be recorded as shown below:

Gain or loss = Fair value of the residual value - Value of the leased equipment

= $12,800-$17,000

= -$4,200

Therefore, the loss recordable by B is $4,200.

Hence option a)$4,200 loss is the correct answer.

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