Question
Morgan Corp enters into a lease of nonspecialized equipment with Hoffman Corp. The following is information about the lease: Lease term five years, no renewal
Morgan Corp enters into a lease of nonspecialized equipment with Hoffman Corp. The following is information about the lease:
Lease term five years, no renewal option
Economic life of equipment is 6 years
no purchase option
annual lease payments $11,000
Morgan Corp's incremetal borrowing rate is 7%
Title to the asset remains with Hoffman Corm upon lease expiration
The fair value of equipment is $50,000
Morgan Corp does not guarantee the residual value of equipment at end of lease term
Morgan Corp pays for all maintenance of equipment separate from lease
No initial direct costs incurred by Morgan corp
Hoffman Corp does not provide any incentives
1. How should Morgan Corp classify the lease?
2. How would Morgan Corp measure and record this lease?
3. How would Morgan Corp measure the right-of-use asset and lease liability over the lease term?
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Cornerstones of Managerial Accounting
Authors: Mowen, Hansen, Heitger
3rd Edition
324660138, 978-0324660135
