On January 1, 2020, Marlene Corp. enters into an agreement with Dietrich Rentals Inc. to lease a
Question:
On January 1, 2020, Marlene Corp. enters into an agreement with Dietrich Rentals Inc. to lease a machine from them. Both corporations adhere to ASPE. The following data relate to the agreement:
1. The term of the non-cancellable lease is three years with no renewal option. Payments of $271,622 are due on December 31 of each year.
2. The fair value of the machine on January 1, 2020, is $700,640. The machine has a remaining economic life of 10 years, with no residual value. The machine reverts to the lessor upon the termination of the lease.
3. Marlene depreciates all its machinery on a straight-line basis.
4. Marlene's incremental borrowing rate is 10%. Marlene does not have knowledge of the 8% implicit rate used by Dietrich.
5. Immediately after signing the lease, Dietrich discovers that Marlene is the defendant in a lawsuit that is sufficiently material to make collectability of future lease payments doubtful.
From Dietrich’s viewpoint, what type of lease is this?
manufacturer or dealer lease |
operating lease |
finance lease |
other finance lease |
Expert Answer:
Lease Agreement is basically the contract between Lessor and Lessee in which Lessor agrees to Lease ... View the full answer
