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Salaur Company, a risky start-up, is evaluating a lease arrangement being offered by TSP Company for use of a standard computer system. The lease is

Salaur Company, a risky start-up, is evaluating a lease arrangement being offered by TSP Company for use of a standard computer system. The lease is non-cancelable, and in no case does Salaur receive title to the computers during or at the end of the lease term. TSP will lease the returned computers to other customers. The lease starts on January 1, 2020, with the first rental payment due on January 1, 2020. Additional information related to the lease and the underlying leased asset is as follows. Yearly rental $3,057.25 Lease term 3 years Estimated economic life 5 years Purchase option $3,000 at end of 3 years, which approximates fair value Renewal option 1 year at $1,500; no penalty for nonrenewal; standard renewal clause Fair value at commencement $10,000 Cost of asset to lessor $8,000 Residual value: Guaranteed 0 Unguaranteed $3,000 Lessors implicit rate (known by the lessee) 12% Estimated fair value at end of lease $3,000

Requirement 1. How Do the Main Provisions Differ from Current Generally Accepted Accounting Principles (GAAP) and Why Are They an Improvement? (See the accounting standards updated on February 2016 related to lease)

Requirement 2: Briefly discuss the impact of the accounting for this lease as a finance or operating lease for two common ratios: return on assets (Net Income/Average Assets) and debt to total assets (total debt/total assets).

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