Question: On December 31, 2015, Reagan Inc. signed a lease for some equipment having a nine-year useful life with Silver Leasing Co. The lease payments are made by Reagan annually, beginning at signing date. Title does not transfer to the lessee, so the equipment will be returned to the lessor on December 31, 2021. There is no bargain purchase option, and Reagan guarantees a residual value to the lessor on termination of the lease.
Reagan's lease amortization schedule appears below:
Dec. 31 |
Payments |
Interest |
Decrease
Balance |
Balance |
| 2015 |
|
|
|
$519,115 |
| 2015 |
$90,000 |
|
$90,000 |
429,115 |
| 2016 |
$90,000 |
$17,165 |
72,835 |
356,280 |
| 2017 |
$90,000 |
14,251 |
75,749 |
280,531 |
| 2018 |
$90,000 |
11,221 |
78,779 |
201,752 |
| 2019 |
$90,000 |
8,070 |
81,930 |
119,822 |
| 2020 |
$90,000 |
4,793 |
85,207 |
34,615 |
| 2021 |
$36,000 |
1,385 |
34,615 |
0 |
What is the amount of residual value guaranteed by Reagan to the lessor?
a. $34,615.
b. $1,385.
c. $36,000.
d. Cannot be determined from the given information.