Tendai Inc. sells computer systems. Tendai leases computers to John company on January 1, 2020. the manufacturing cost of the computers was $12 million.

This non-concealable lease had the following terms:

* Lease payments : $2,125,000 semiannually , first payment at January 1,2020, remaining payments at June 30 and December 31 each year through jump 30,2022.

* Lease term : 3 years (6 semi-annual payments)

* No residual value; no bargain purchase option

* Economic life of equipment : 5 years.

* Implicit interest rate and lessee's incremental borrowing rate : 5% semi-annually.

* Fair value of the computers at January 1,2020: $20 million

Collectability of the rental payments is reasonably assured, and there are no lessor costs yet to be incurred. there is no transfer of ownership stipulation.

1- Tendai would account for this as : A- Capital lease. B- a direct financing lease. C- a sales type lease. D- an operating lease.

2- John company would account for this as : A- a capital lease. B- a direct financing lease. C- a sales type lease. D- an operating lease.

3- What is the net carrying value of the lease liability in john's June 30,2020 balance sheet, if any? (if not, write "0").

4- What is the net amount that Tandai would report on this lease in its 2020 income statement?

Answer rating: 100% (QA)

1 Tendai would account for this as a capital lease 2 John company would account for this as a capita... View the full answer