On January 1, Borman Company, a lessee, entered into three noncancelable leases for brand- new equipment: Lease
Question:
1. Lease J does not contain a bargain purchase option; the lease term is equal to 80 percent of the estimated economic life of the equipment.
2. Lease K contains a bargain purchase option; the lease term is equal to 50 percent of the estimated economic life of the equipment.
3. Lease L does not contain a bargain purchase option; the lease term is equal to 50 percent of the estimated economic life of the equipment.
Required:
a. How should Borman Company classify each of the three leases, and why? Discuss the rationale for your answer.
b. What amount, if any, should Borman record as a liability at the inception of the lease for each of the three leases?
c. Assuming that the minimum lease payments are made on a straight- line basis, how should Borman record each minimum lease payment for each of the three leases?
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Related Book For
Financial Accounting Theory and Analysis Text and Cases
ISBN: 978-1118582794
11th edition
Authors: Richard G. Schroeder, Myrtle W. Clark, Jack Cathey
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