Question
Halos Co. is a manufacturer of truck trailers. On 1 January 2021, Halos Co. leased trailers to Leslie Company under a six-year noncancelable lease agreement.
Halos Co. is a manufacturer of truck trailers. On 1 January 2021, Halos Co. leased trailers to Leslie Company under a six-year noncancelable lease agreement. The following information is relevant to the lease agreement: 1. An annual payment of $132,193, starting 1 January 2021, provides Halos Co. with an 8% return on investment. 2. Titles of the trailers do not pass to Leslie Company at the end of the lease. 3. The trailers have an expected useful life of 7 years. 4. The fair value of the trailers was $660,000 on 1 January 2021. 5. The cost of the trailers to Halos Co. is $540,000. Required: B. Discuss how Halos Co. should classify the lease. (6 marks)
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