Iman Iron Works signed a lease on January 1 with Binks Bank for an iron- stamping machine.

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Iman Iron Works signed a lease on January 1 with Binks Bank for an iron- stamping machine. The lease has a 12-year term with no purchase option or transfer of ownership. Under the terms of the contract, Iman must pay $ 3,500 at the beginning of each year. Binks Bank’s implicit rate is 8%. The iron-stamping machine has an economic life of 25 years and a fair value of $ 35,000. If Iman borrowed at Binks Bank, the loan would have carried an interest rate of 10%. The lessee knows the implicit rate. Is this contract an operating or a capital lease for the lessee?
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Intermediate Accounting

ISBN: 978-0132162302

1st edition

Authors: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella

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