On January 1, 2016, Renee Corp., a lessee, signed a five-year capital lease for new equipment. The lease requires annual payments of $8,000. The first payment is due on December 31, 2016. Renee guaranteed a residual value of $2,000. On December 31, 2020, Renee returned the asset to the lessor, and the asset was appraised at a value of
$1,500. Renee should record which of the following on December 31, 2020?

Question

Quizplus · Accepted Answer

Renee guaranteed a residual value of $2,000, but the asset was appraised at only $1,500 upon return. This results in a $500 shortfall from the guaranteed residual value, which Renee is responsible for covering. Therefore, Renee should recognize a $500 loss on disposal of the leased equipment.