![]() ![]() So the lessor cant count on the $60,000 residual value to help recover its $479,079 investment. In that case, it is Sans Serif, not CompuDec, who will benefit by the residual value. Suppose Sans Serif will own the copier at the end of the lease termby transfer of title or by the expected exercise of a bargain purchase option. However, our discussion of the effect of a residual value would be precisely the same if our illustration were of a direct financing lease (for instance, if the lessors cost were $479,079) except that, of course, neither sales revenue nor cost of goods sold would be recorded in a direct financing lease. * This provision is to be consistent with Illustration 15-3 which described a sales-type lease. *ĬompuDecs interest rate for financing the transaction is 10%. At the end of the six-year lease term the copier is expected to be worth $60,000.ĬompuDec manufactured the copier at a cost of $300,000. The estimated useful life of the copier is seven years. The lease agreement specifies annual payments beginning December 31, 2006, the inception of the lease, and at each December 31 through 2011. On December 31, 2006, Sans Serif Publishers, Inc., leased a color copier from CompuDec Corporation at a price of $479,079. In deciding whether the residual value affects how the lease is recorded, the first question that influences the answer is Who gets the residual value? I LLUSTRATION 15-4 Well use modified Illustration 15-4 to see why. Should this influence the lessors (CompuDec) calculation of periodic rental payments? Other than the possible influence on rental payments, should the lessee (Sans Serif Publishers) be concerned with the residual value of the leased assets? The answer to both questions is maybe. Suppose the copier leased in Illustration 15-3 was expected to be worth $60,000 at the end of the six-year lease term. But now lets consider the economic effect of a leased asset that does have a residual value and how that will affect the way both the lessee and the lessor account for the lease agreement. ![]() In our previous examples of nonoperating leases, we assumed that the residual value was negligible. of leased property is an estimate of what its commercial value will be at the end of the lease term. The residual value or salvage value, the amount the company expects to receive for the asset at the end of its service life less any anticipated disposal costs. P ART B RESIDUAL VALUE AND BARGAIN PURCHASE OPTIONS Please change your browser preferences to enable javascript, and reload this page. You must have javascript enabled to view this website. ![]()
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