Presented below are three different lease transactions that occurred for Ruggiero Inc. in 2014. Assume that all lease contracts start on January 1, 2014. In no case does Ruggiero receive title to the properties leased during or at the end of the lease term.

Instructions

(a) Which of the leases are operating leases and which are capital leases? Explain.

(b) How should the lease transaction for Hester Co. be recorded in 2014?

(c) How should the lease transaction for Judson Delivery be recorded on January 1, 2014?

Lessor Hester Co. Delivery equipment $ 4,200 Gunselman Auto Automobile Judson Delivery Computer Type of property Yearly rental Lease term Estimated economic life Fair value of lease asset Present value of the lease rental payments Bargain purchase option $ 5,000 6 years 7 years $ 3,700 2 years 5 years $11,000 4 years 7 years $19,000 $27,500 $26,000 None $ 6,400 None $13,000 None