1-

Martius Company, a maker of high-tech gadgets, routinely leases equipment made by competitors in order to reverse-engineer design features Martius may want to incorporate in its own products. The reverse-engineering process is part of Martiuss 9-month product development cycle and involves disassembling then later reassembling the equipment. LeaseCo. leases such equipment to Martius under a 12-month lease term. According to the terms of the lease, at the end of the lease term Martius will have the option to purchase the equipment for less than its expected fair value at that time. Martius Company is located in an area where commercial space is at a premium, there is no internal use for the competitor equipment at the end of Martiuss product development cycle, and Martiuss management wishes to focus solely on the manufacture and sale of its own equipment. Management also wishes to minimize liabilities reported on the balance sheet. In light of the above, as which type of lease is Martius most likely to record, correctly, its arrangement with LeaseCo.?

Multiple Choice

As a finance lease.

As a short-term lease.

As an operating lease.

Not enough information to decide.

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Tucson Fruits leased farm equipment from Barr Machinery on July 1, 2021. The lease was recorded as a sales-type lease. The present value of the lease payments discounted at 10% was $40.5 million. Ten annual lease payments of $6 million are due at the beginning of each year beginning July 1, 2021. Barr had purchased the equipment for $33 million. What amount of interest revenue from the lease should Barr report in its 2021 income statement?

Multiple Choice

$2,025,000

$1,725,000

$1,650,000

$0