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    Financial Statements of Bush Corporation

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    Bush Corporation signed a lease for equipment from EZ Leasing Company on January 1 20X2, for a period of ten years at $40,000 per year, including insurance of $3,000 and taxes of $2,000 per year. The equipment had a useful life of fifteen years. At the end of the lease, Bush will have the option of buying the equipment outright for a dollar. Bush's incremental borrowing rate is 8%, and the rate implicit in the lease (which is known to Bush) is 6%. Lease payments are due every year on December 31. The present value of an annuity for various terms and rates are as follows:

    6% 8%
    10 years 7.360 6.710
    15 years 9.712 8.559

    On its financial statements for the year ended June 30, 20X2, Bush will display the following:

    Accumulated Equipment:
    Lease Depreciation:
    Accrued Payable:

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    Solution Preview

    Discount rate 6%
    Annual payment:
    Lease payment 40000
    Insuarnce 3000
    Taxes 2000
    Lease term 10 years
    Useful ...

    Solution Summary

    Accumulated equipment, lease depreciation, accrued payable, and interest are determined for Bush Corporation.