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Santos Corp. manufactures equipment. On January 1, 2020, Santos Corp. leases equipment to Bancroft, Inc. under a six-year noncancelable lease agreement. The following information about
- Santos Corp. manufactures equipment. On January 1, 2020, Santos Corp. leases equipment to Bancroft, Inc. under a six-year noncancelable lease agreement. The following information about the lease and the equipment is provided:
- Equal annual payments that are due on December 31 each year provide Roland Corp. with an 8% return on net investment.
- Title to the equipment passes to Bancroft, Inc. at the end of the lease.
- The fair value of the equipment equals the cost $600,000. The equipment has an expected useful life of ten years and no residual value at the end of 10 years.
- Collectability of the lease payments is reasonably predictable and there are no important uncertainties surrounding the amount of costs yet to be incurred by Santos.
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- What type of lease is this for Santos Corp.? Discuss.
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Financial Theory and Corporate Policy
Authors: Thomas E. Copeland, J. Fred Weston, Kuldeep Shastri
4th edition
321127218, 978-0321179548, 321179544, 978-0321127211
