Ivanhoe Company leases a building to Cullumber, Inc. on January 1, 2025. The following facts pertain to the lease agreement. 1. The lease term is 4 years, with equal annual rental payments of $4,181 at the beginning of each year. 2. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature. 3. The building has a fair value of $16,500, a book value to Ivanhoe of $9,500, and a useful life of 5 years. 4. At the end of the lease term, Ivanhoe and Cullumber expect there to be an unguaranteed residual value of $2,450. 5. Ivanhoe wants to earn a return of 9% on the lease, and collectibility of the payments is probable. This rate is known by Cullumber.
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