Situation 1 2 3 4 Lease term (years) 4 4 4 4 Assets useful life (years) 6 5 6 6 Assets fair value $44,000 $43,000 $41,000 $39,000 Bargain purchase option? No Yes No No Annual lease payments Beg. of yr. End of yr. Beg. of yr. End of yr. Lessors implicit rate (known by lessee) 5% 6% 5% 6% Lessees incremental borrowing rate 5% 5% 5% 5% Each of the four independent situations above describes a lease requiring annual lease payments of $10,000. For each situation, determine the appropriate lease classification by the lessee.

Situation Lease Classifaction

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