Question
Presented below are three different lease transactions that occurred for Ruggiero Inc. in 2014. Assume that all lease contracts start on January 1, 2014. In
Presented below are three different lease transactions that occurred for Ruggiero Inc. in 2014. Assume that all lease contracts start on January 1, 2014. In no case does Ruggiero receive title to the properties leased during or at the end of the lease term.
| Lessor |
Judson Delivery
Hester Co.
Gunselman Auto
Type of property
Computer
Delivery equipment
Automobile
Yearly rental
$ 5,000
$ 4,200
$ 3,700
Lease term
6 years
4 years
2 years
Estimated economic life
7 years
7 years
5 years
Fair value of lease asset
$27,500
$19,000
$11,000
Present value of the lease rental payments
$26,000
$13,000
$6,400
Bargain purchase option
None
None
None
Instructions
| (a) | Which of the leases are operating leases and which are capital leases? Explain. |
| (b) | How should the lease transaction for Hester Co. be recorded in 2014? |
| (c) | How should the lease transaction for Judson Delivery be recorded on January 1, 2014? |
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International Accounting
Authors: Timothy Doupnik, Hector Perera
3rd Edition
978-0078110955, 0078110955
