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Each of the four independent situations below describes a lease requiring annual lease payments of $30,000. Situation 1 Situation 2 Situation 3 Situation 4 Lease

Each of the four independent situations below describes a lease requiring annual lease payments of $30,000.

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.

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