On January 1, Lessee Company leases equipment with a fair value of $2,000 from Lessor Company...
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On January 1, Lessee Company leases equipment with a fair value of $2,000 from Lessor Company for 3 years, with no renewal options. The estimated life of the equipment is 5 years and there is no purchase option at the end of the lease term. The annual le payment is $700, which includes a $50 charge for an annual maintenance contract. The first payment is due immediately. Lessee Company's incremental borrowing rate is 6% and the lessee is not readily able to determine the lessor's implicit interest rate. Titl the equipment remains with the lessor at lease end and the lessee does not guarantee the residual value at lease end. a. Determine the classification of the lease for Lessee Company. b. Determine the classification of the lease for Lessor Company. Lease Classification Criteria Criterion Met? Analysis Option One 1. Ownership transfer 2. Purchase option = ÷ 3. Lease term length = year lease term is % of the asset's useful life of years. 4. Present value of lease payments ÷ PV of lease payments of 5 is % of the asset's fair value of S 5. No alternative use = On January 1, Lessee Company leases equipment with a fair value of $2,000 from Lessor Company for 3 years, with no renewal options. The estimated life of the equipment is 5 years and there is no purchase option at the end of the lease term. The annual le payment is $700, which includes a $50 charge for an annual maintenance contract. The first payment is due immediately. Lessee Company's incremental borrowing rate is 6% and the lessee is not readily able to determine the lessor's implicit interest rate. Titl the equipment remains with the lessor at lease end and the lessee does not guarantee the residual value at lease end. a. Determine the classification of the lease for Lessee Company. b. Determine the classification of the lease for Lessor Company. Lease Classification Criteria Criterion Met? Analysis Option One 1. Ownership transfer 2. Purchase option = ÷ 3. Lease term length = year lease term is % of the asset's useful life of years. 4. Present value of lease payments ÷ PV of lease payments of 5 is % of the asset's fair value of S 5. No alternative use =
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Related Book For
Intermediate accounting
ISBN: 978-0077647094
7th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson
Posted Date:
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