Situation 1 2 3 4 Lease term (years) Asset's fair value be exercised? 4 4 4 4 Asset's useful life (years) 6 $44,000 Purchase option that is reasonably certain to No Annual lease payments Beginning of year Lessor's implicit rate (known by lessee) Lessee's incremental borrowing rate 5% 5% 5 $45,000 Yes End of year 6% 6 $41,000 6 $38,000 No Beginning of year 5% No End of year 6% 5% 5% 5% Required: Each of the four independent situations above describes a lease requiring annual lease payments of $10,000. For each situation, determine the appropriate lease classification by the lessee. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Situation Lease Classification 1. 2. 3. 4.