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Widget Corporation (Widget) manufactures equipment with an estimated economic life of 11 years. On May 30, 2020, Widget leases it to Gadget Corporation (Gadget) for

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Widget Corporation ("Widget") manufactures equipment with an estimated economic life of 11 years. On May 30, 2020, Widget leases it to Gadget Corporation ("Gadget") for a period of 10 years. Details of the lease are as follows: Equipment has a fair value and cost at the inception of the lease: $185,078. Guaranteed residual value: $20,000. Annual lease payment, due at beginning of each year: $25,250. Lease contains no renewal options and the equipment reverts to Widget at the end of the lease. Gadget's incremental interest rate, as well as implicit rate is 9%. Gadget uses straight-line amortization for similar equipment that it owns. Widget has determined that collectibility of lease payments is reasonably predictable and that no additional costs will be incurred. Required: 1. Identify the lease criteria. 2. How the lessee and lessor should account for the lease transaction. Assume both companies follow ASPE

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