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Merlin Co. leased equipment to Houdini Inc. The equipment has a fair market value of $400,000 and cost the lessor $320,000. The useful life of
Merlin Co. leased equipment to Houdini Inc. The equipment has a fair market value of $400,000 and cost the lessor $320,000. The useful life of this equipment - 9 years. The appropriate interest rate for this lease is 8%. The equal annual lease payments are made at the beginning of each year. The lease term is 5 years. There is a "bargain purchase option" allowing Houdini the option to purchase the equipment at the end of year 3 for $60,000. Required: a. (3 pts) How should Merlin classify this lease? Why? b. (10 pts) Determine the annual lease payments, as calculated by the lessor. Make sure to SHOW your work in an understandable format (round your answer to the nearest whole dollar amount.) C, (2 pts) What amount should the lessee show as a Right-of-Use asset on their balance sheet
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