Questions 7-11 Medical imaging Co. leased equipment to Family Care, Inc for 10 years beginning on January 1, Year 1. The first lease payment of $12,000 was made on January 1, Year 1 with all subsequent lease payments due annually on December 31 st. The equipment has an estimated useful life of 12 years and its fair value is equal to the present value of the minimum l payments. The interest rate implicit in the lease is 10% and is known to Family Care, Inc. amily Care Inc's incremental borrowing rate is 11%. At the end of the lease term, Family Car Inc. does not have th e option to purchase the equipment and ownership will not transfer. 6.759 PV of an annuity due of $1 for 10 periods at 11% 6.537 Present value amounts: PV of an annuity due of $1 for 10 periods at 10% 7. What type of lease will this transaction be accounted for by the lease? a. Operating lease b. Capital lease because only the 75% teat has been satisfied. c. Capital lease because both the 75% and 90% test have been satisfied d. Capital lease because only the 90% test has been satisfied What interest rate is used in computing the present value of the lease payment? 8. a. Always use the lessor's borrowing rate b. Always use the lessee's borrowing rate e. Always use the greater of the lessor or lessee borrowing rate. d. Always use the lower of the lessor or lessee borrowing rate 2