Cradle's approach to accounting for a sales-type lease aligns with the methodologies of the Big Four accounting firms.

As an example, Deloitte's ASC 842 - Leases guide provides detailed steps on sales-type lease accounting, which is referenced on page 460.

- Lease term: 6 years.

- Lease payments: $9,500/year, beginning at the end of year 1.

- Residual value guaranteed by the lessee: $13,000.

- Collectability of lease payments and residual value guarantee is probable.

- Economic life of equipment: 9 years.

- Carrying amount: $54,000.

- Fair value: $62,000.

- Expected residual value at the end of the term: $20,000.

- Lessor incurs $2,000 in initial direct costs.

When entering data into Cradle, it is crucial to note that the rate implicit in the lease is calculated by including:

- Lease payment for year 6: $9,500.

- Unguaranteed residual value: $20,000.

- Residual value guarantee: $13,000.

The total of these payments amounts to $42,500. However, Deloitte's calculation considers only the lease payment and the unguaranteed residual value, summing up to $29,500, even though their guide indicates the residual value guarantee of $13,000 should also be included.

Deloitte

Cradle

The primary distinction between Cradle’s and Deloitte's calculations lies in the segregation of the Net Investment in Cradle into two components: the Unguaranteed Residual Asset (Sales-Type Lease) and the Lease Receivable. Together, these values total $62,000.

The present value of the calculation is determined using the rate implicit in the lease, which is 9.122%. The lease payments are present-valued using the XNPV function in Excel:

Date Amount

01-Jan-2024 $0

31-Dec-2024 $9,500.00

31-Dec-2025 $9,500.00

31-Dec-2026 $9,500.00

31-Dec-2027 $9,500.00

31-Dec-2028 $9,500.00

31-Dec-2029 $22,500.00

PV: $50,157.08

Date Amount

01-Jan-2024 $0

30-Dec-2029 $20,000.00

PV: $11,845.75

Deloitte

Cradle

For additional details on how to execute these calculations within Cradle, refer to the specific guidance or reach out to Cradle's support for personalized assistance.