Tropical Products Inc. is in the process of negotiating a lease of equipment with a fair...
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Tropical Products Inc. is in the process of negotiating a lease of equipment with a fair value of $50,000, and it must determine the proper lease classification. The following table describes four scenarios under negotiation. Ownership transfer Purchase option Lease term length, in years Economic life of equipment, in years Alternative use of equipment at lease end Annual lease payment Guaranteed residual value Implicit rate of lease Incremental borrowing rate of lessee Payment type Option One No No ◆ ◆ ◆ Option Two No No Option Three No No 4 3 4 5 5 5 Yes Yes $11,000 Yes $11,000 No No $11,000 $15,000 8.4% Unknown to lessee Unknown to lessee 8% 8% 8% Beginning of period Beginning of period Beginning of period Option Four No Yes, for $10,000 which is a discounted price 3 5 Yes $11,000 No Unknown to lessee 8% End of period Required Determine the proper classification for each of the four separate scenarios assuming that Tropical Products Inc. is the lessee. Option Lessee Lease Classification Option One Option Two Option Three Option Four Tropical Products Inc. is in the process of negotiating a lease of equipment with a fair value of $50,000, and it must determine the proper lease classification. The following table describes four scenarios under negotiation. Ownership transfer Purchase option Lease term length, in years Economic life of equipment, in years Alternative use of equipment at lease end Annual lease payment Guaranteed residual value Implicit rate of lease Incremental borrowing rate of lessee Payment type Option One No No ◆ ◆ ◆ Option Two No No Option Three No No 4 3 4 5 5 5 Yes Yes $11,000 Yes $11,000 No No $11,000 $15,000 8.4% Unknown to lessee Unknown to lessee 8% 8% 8% Beginning of period Beginning of period Beginning of period Option Four No Yes, for $10,000 which is a discounted price 3 5 Yes $11,000 No Unknown to lessee 8% End of period Required Determine the proper classification for each of the four separate scenarios assuming that Tropical Products Inc. is the lessee. Option Lessee Lease Classification Option One Option Two Option Three Option Four
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Question Answer Option Lessee lease classification Reason Option one ... View the full answer
Related Book For
Financial Reporting and Analysis
ISBN: 978-0078025679
6th edition
Authors: Flawrence Revsine, Daniel Collins, Bruce, Mittelstaedt, Leon
Posted Date:
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