CASE 1314 Operating Lease Recognition Automobile Lease

Kofax Company leases an automobile to Drysdale Company on January 1, 2020.

The following table information about the lease and the leased asset is available.

Lease term 3 years, no renewal option

Economic life of the automobile 6 years

Fair value of the automobile $30,000

Kofax Companys carrying value of the automobile - $30,000

Drysdale Company has the option to purchase the automobile at fair market value upon expiration of the lease.

Monthly lease payments $500 for the first year, $550 for the second year, $600 for the third year

Payment date - Beginning of the month (first payment is made at lease commencement)

Interest rate implicit in the lease 8%

Title to the automobile remains with Kofax Company upon lease expiration

The expected residual value of the automobile at the end of the lease term is $19,000; Drysdale Company does not guarantee the residual value of the automobile at the end of the lease term Drysdale Company pays for all maintenance of the automobile separate from the lease There are no initial direct costs incurred by Drysdale Company Kofax Company does not provide any incentives

Required:

What type of lease is this for Kofax?

How would Kofax Company measure and record this lease?

How would Kofax Company account for the leasing transaction after lease commencement