Three different lease transactions are presented below for Ashton Corporation. Assume that all lease transactions start on January 1, 2020. Ashton does not receive title to the properties either during the lease term or at the end of it. The yearly rental for each of the leases is paid on January 1, starting on January 1, 2020. Ashton Corporation follows ASPE.

Lessor

Gray Inc. Daan Co. Preston Ltd.

Type of property Bulldozer Truck Machine

Bargain purchase option None None None

Lease term 7 years 3 years 3 years

Estimated economic life 8 years 7 years 5 years

Yearly rental $10,000 $8,000 $2,000

Fair market value of leased asset $78,000 $28,000 $15,000

Present value of the lease rental payments $74,000 $21,000 $4,500

Instructions:

a) Which of the above leases are operating leases and which are capital leases? Explain your reasoning for each. (3 marks)

b) How should the lease transaction for each of the above assets be recorded on January 1, 2020? (3 marks)

c) Assume instead that Ashton follows IFRS. Which of the above leases are operating leases and which are finance leases? Explain your reasoning. (1 mark)