Presented below are three different lease transactions that occurred for Ruggiero Inc. in 2017. Assume that all lease contracts start on January 1, 2017. 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 2017?

(c) How should the lease transaction for Judson Delivery be recorded on January 1, 2017?

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