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Classifying Leases On January 1 , Lessee Company leases a vehicle with a fair value of $ 3 0 , 0 0 0 from Lessor

Classifying Leases
On January 1, Lessee Company leases a vehicle with a fair value of $30,000 from Lessor Company for 3 years, with no renewal options. The estimated life of the vehicle is 6 years and Lessee Company has an option to purchase the vehicle at lease end at the vehicle's fair value, which the lessee is not expected to exercise. The monthly lease payment is $520, with the first payment due immediately. Lessee Company's incremental borrowing rate is 6% and the lessee is not readily able to determine the lessor's implicit interest rate. Title to the equipment remains with the lessor at lease end and the lessee does not guarantee the residual value at lease end. Lessee Company will pay for the maintenance of the vehicle separately from the lease.
a. Determine the classification of the lease for Lessee Company. Operating Lease
b. Determine the classification of the lease for Lessor Company. Operating Lease
\table[[Lease Classification Criteria,Criterion Met?,Analysis],[1.,Ownership transfer,No,,,,,,,,,],[,Purchase option,No,~~,,,,,,,,],[3.,Lease term length,No,=,3,year lease term is,,50%,of the asset's useful life of,,6,years.],[4.,Present value of lease payments,No,,grad of lease payments of,x,is,%,of the asset's fair value of,$,x,],[,No alternative use,No,**,,,,,,,,]]
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