Question
Each 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
Each 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 $123,000 $129,000 $117,000 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% 5% 7% 6% Lessee's incremental borrowing rate 5% 5% 5% 5% Required: For each situation, determine the appropriate lease classification by the lessee and indicate why.
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