Question
Lessee Inc. is considering the following lease. The equipment to be leased has a fair value of $100,000. Lease Information Ownership of equipment transfers to
Lessee Inc. is considering the following lease. The equipment to be leased has a fair value of $100,000.
| Lease Information |
Ownership of equipment transfers to lessee at lease-end | No |
Lease includes a purchase option | No |
Length of lease term | 5 |
Economic life of the equipment | 8 |
Alternative use of the equipment at lease-end | Yes |
Annual lease payment, first payment due at end of each period. | $21,500 |
Guaranteed residual value | $20,000 |
Lessee Inc.s incremental borrowing rate is 7%. The lessee estimates an expected fair value of only $12,000 of the equipment at lease-end based on its expected usage.
In determining whether to classify this lease as finance or operating, how many lease classification criteria would this meet for Lessee Inc?
0
3
2
1
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started