The following facts are for a non-cancellable lease agreement between Hebert Corporation and Russell Corporation, a lessee: Inception date……………………………………………………………………..July 1, 2014 Annual lease payment due at the beginning of each year, starting July 1, 2014…..$20,066.26 Bargain purchase option price at end of lease term…………………………………$ 4,500.00 Lease term……………………………………………………………………………….5 years Economic life of leased equipment……………………………………………………10 years Lessor s cost………………………………………………………………………..$60,000.00 Fair value of asset at July 1, 2014………………………………………………….$88,000.00 Lessor s implicit rate………………………………………………………………………..9% Lessee s incremental borrowing rate………………………………………………………..9% The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties about costs that have not yet been incurred by the lessor. The lessee assumes responsibility for all executory costs. Both Russell and Hebert use ASPE. Instructions Answer the following, rounding all numbers to the nearest cent. (a) Discuss the nature of this lease to Russell Corporation, the lessee. (b)
