2) Each of the four independent situations below describes a lease requiring annual lease payments of $30,000. The equipment is non-specialized in nature.

	Situation 1	Situation 2	Situation 3	Situation 4
Lease term (years)	4	4	4	4
Asset's useful life (years)	6	6	5	6
Asset's fair value	$132,000	$114,000	$129,000	$115,000
Bargain purchase option?	No	No	Yes	No
Annual lease payments	Beg. of yr.	End of yr.	Beg. of yr.	End of yr.
Lessor's implicit rate (known by lessee)	5%	6%	6%	5%
Lessee's incremental borrowing rate	5%	5%	5%	5%

Required: For each situation, determine the appropriate lease classification by the lessee and indicate why. Round your answers to the nearest whole dollar amounts.

	Situation 1	Situation 2	Situation 3	Situation 4
Lease Classification Finance(F) or Operating (O)?
Indicate below whether the stated lease criteria is a Y or a N.
1. Does ownership of asset transfers to lessee?
2. Contains a Bargain Purchase Option certain to be exercised?
3. Is the lease term for the major part of the estimated economic life of the asset?
4. Is the present value of the lease payments equal to or greater than substantially all of the fair value of the asset?
5. Is the asset of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term?