Question
Company A (Lessor) and Company B (Lessee) have signed a lease agreement between themselves for a pickup vehicle. The lease term is 3 years. The
Company A (Lessor) and Company B (Lessee) have signed a lease agreement between themselves for a pickup vehicle. The lease term is 3 years. The useful economic life of the vehicle is 10 years. The fair value of the pickup at the end of the term, estimated today, is $10,00,000. The rental payment per month is $25,000. The lease contract contains a clause under which Company B will have the option to purchase the Pickup after the end of the lease term at $800,000.
1)Based on the above information, classify what type of lease it is (if at all). Provide justifications for your answer. 2)State the tax treatment of this agreement for the Lessor and Lessee, respectively.
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