Presented below are three different lease transactions that occurred for Milo Inc. in 2011. Assume that all lease contracts start on January 1, 2011. In no case does Milo receive title to the properties leased during or at the end of the lease term.

Instructions
(a) Which of the leases above are operating leases and which are capital leases? Explain.
(b) How should the lease transaction with Eller Co. be recorded in 2011?
(c) How should the lease transaction for Gibson Delivery be recorded on January 1,2011?

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Lessor Gibson Delivery Eller Co. Louis Auto Type of property Yearly rental Lease ternm Estimated economic life Fair market value of leased asset Present value of the lease rental Computer 8,000 6 years years $44,000 Delivery equipment Automobile 4,200 4 years years $19,000 S3,700 years 5 years $11.000 payments Bargain purchase option $41,000 None $13,000 None S 6,400 None