Presented below are three different lease transactions that occurred for Manitoba Inc. in 2012. Assume that all lease contracts start on January 1, 2012. In no case does Manitoba receive title to the properties leased during or at the end of the lease term.

Instructions(a) Which of the leases are operating leases and which are capital leases? Explain.(b) How should the lease transaction for DiBell Co. be recorded in 2012?(c) How should the lease transaction for Farrey Delivery be recorded on January 1,2012?

Transcribed Image Text:

Lessor DiBell Co. Delivery equipment Farrey Delivery Diederich Auto Automobile Type of property Yearly rental Lease term Estimated economic life Fair value of lease asset Present value of the lease rental payments Bargain purchase option Computer $ 6,000 6 years $ 4.200 $ 3,700 4 years 2 years 7 years $33,000 7 years $19.000 5 years $11,000 $13,000 None $ 6,400 None $31,000 None