Morgan Bakeries is involved in four different lease

Morgan Bakeries is involved in four different lease situations. Each of these leases is noncancelable, and in no case does Morgan receive title to the properties leased during or at the end of the lease term. All leases start on January 1, 2014,with the first rental due at the beginning of the year. Additional information is shown in the following table:

(a)Harmon, Inc

(b)Arden’s Oven Co.

(c)Mendota Truck Co.

(d)Appleland Computer

Type of Property

Cabinets

Ovens

Truck

Computer

Yearly Rental

$6,000

$15,000

$5,582.62

$3,557.25

Lease term

20 years

10 years

3 years

3 years

Est economic life

30 years

25 years

7 years

5 years

Purchase Option

none

$75,000 at the end of 10 years

$4,000 at the end of 15 years

none

$3,000 at the end of 3 years, which approximates fair value

Fair value at inception of lease

$60,000

$120,000

$20,000

$10,000

Cost of asset to lessor

$60,000

$120,000

$15,000

$10,000

Residual value

Guaranteed

0

0

$7,000

0

Unguaranteed

$5,000

0

0

$3,000

Incremental borrowing rate of lessee

12%

12%

12%

12%

Executory costs paid by

Lessee $300 per year

Lessee $1,000 per year

Lessee $500 per year

Lessor Estimated to be $500 per year, included in lease payment

Present value of minimum lease payments

Using incremental borrowing rate of lessee

$50,194.68

$115,153.35

$20,000

$8,224.16

Using implicit rater of lessor

Not known

Not known

Not known

Know by lessee, $8,027.48

Estimated fair value at end of lease

$5,000

$80,000 at end of 10 years

$60,000 at end of 15 years

Not available

$3,000

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