EXERCISES Criteria for Capitalizing Leases Atwater Manufacturing Co. leases its equipment from Westside Leasing Company. In each of the following cases, assuming none of the other criteria for capitalizing leases are met, determine whether the lease EU [15-49 would be a capital lease or an operating lease under FASB ASC Topic 840. on the terms presented, considering each case independently of the others. operating lease under FASB ASC Topic 840. Your decision is to be based only (a) At the end of the lease term, the market value of the equipment is has the option of purchasing it for $5,000. the market value of the equipment is expected to be $20,000. Atwater (b) The fair value of the equipment is $75,000. The present value of the lease pay (excluding any executory costs). present value of the lease payments is $67,000 (C) Ownership of the property automatically passes to Atwater at the end of the lease (d) The economic life of the equipment is 12 years. The lease term is eight years. (e) The lease requires payments of $9,000 per year in advance plus executory costs of $500 per year. The lease period is three years, and Atwater's incremental borrowing rate is 12%. The fair value of the equipment is $28,000. (f) The lease requires payments of $6,000 per year in advance, which includes executory costs of $500 per year. The lease period is three years, and Atwater's incremental borrowing rate is 10%. The fair value of the equipment is $16,650