Question

On December 31, 2020, Reagan Inc. signed a lease with Silver Leasing Co. for some equipment having a seven-year useful life. The lease payments are made by Reagan annually, beginning at signing date. Title does not transfer to the lessee, so the equipment will be returned to the lessor on December 31, 2026. There is no purchase option, and Reagan guarantees a residual value to the lessor on termination of the lease.

Reagan's lease amortization schedule appears below:

Dec. 31	Payments			Interest			Decrease in Balance			Outstanding Balance
2020										$	465,434
2020	$	94,800					$	94,800			370,634
2021	$	94,800		$	40,770			54,030			316,604
2022	$	94,800			34,826			59,974			256,630
2023	$	94,800			28,229			66,571			190,059
2024	$	94,800			20,907			73,893			116,166
2025	$	94,800			12,778			82,022			34,144
2026	$	37,900			3,756			34,144			0

What is the amount of residual value guaranteed by Reagan to the lessor?

Multiple Choice

• a)Cannot be determined from the given information.

• b)$3,756.

• c)$34,144.

• d)$37,900.

Answer 1

Amount of residual value guaranteed by Reagan to the lessor is the amount of payment made at the end of lease on Dec. 31, 2026

Amount of residual value guaranteed by Reagan to the lessor = $37,900

Option D $37,900 is correct