Each of the four independent situations above describes a lease requiring annual lease payments of $10,000. For each situation, determine the appropriate lease classification by the lessee. (FV of $1,PV of $1,FVA of $1,PVA of $1,FVAD of $1andPVAD of $1)(Use appropriate factor(s) from the tables provided.)

Each situation is financial lease/ operating lease?

1)

2)

3)

4)

Lease term (years) 4 4 4 4 Asset's useful life (years) 6 5 6 6 Asset's fair value $44,000 $45,000 $41,000 $38,000 Purchase option that is reasonably certain to be exercised? No Yes No 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% 5% 6% Lessee's incremental borrowing rate 5% 5% 5% 5%