Question
East Co. leased a new machine from North Co. on May 1, 2016, under a lease with the following information: Lease term 10 years annual
East Co. leased a new machine from North Co. on May 1, 2016, under a lease with the following information:
Lease term 10 years
annual lease payments due at the beginning of each lease year $40,000
remaining useful life of the machine 12 years
implicit interest rate 14%
Present value factor for an annuity due n=10, i=14% 5.95
Present value factor of $1 with terms n=10, i=14% 0.27
East has the option to purchase the machine on May 1, 2023, by paying a bargain price of $5,000.
Question: What type of lease classification is most appropriate for East Co.?
Finance lease | ||
Operating lease | ||
Sales lease back | ||
Optional lease arrangement |
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