Lopez Company leases a new machine to Abbott Corporation. The machine has a cost of $70,000 and fair value of $95,000. Under the 3-year, non-cancelable contract, Abbott will receive title to the machine at the end of the lease. The machine has a 3-year useful life and no residual value. The lease was signed on January 1, 2020. Lopez expects to earn an 8% return on its investment, and this implicit rate is known by Abbott. The annual rentals are payable on each December 31, beginning December 31, 2020. How should this lease be recorded by Lopez and Abbott?

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The Answer of Lopez Company leases a new machine to Abbott Corporation. The machine has a cost of $70,000 and fair value of $95,000. Under the 3-year, non-cancelable contract, Abbott will receive title to the machine at the end of the lease. The machine has a 3-year useful life and no residual value. The lease was signed on January 1, 2020. Lopez expects to earn an 8% return on its investment, and this implicit rate is known by Abbott. The annual rentals are payable on each December 31, beginning December 31, 2020. How should this lease be recorded by Lopez and Abbott?

Lopez Company Leases a New Machine to Abbott Corporation