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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

Which of the leases are operating leases and which are capital leases? Explain.

How should the lease transaction for Hester Co. be recorded in 2014?

How should the lease transaction for Judson Delivery be recorded on January 1, 2014?

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