Situation 1 2 3 4 Lease term (years) 4 4 4 4 Asset’s useful life (years) 6 5 6 6
ID: 2465565 • Letter: S
Question
Situation 1 2 3 4 Lease term (years) 4 4 4 4 Asset’s useful life (years) 6 5 6 6 Asset’s fair value $44,000 $43,000 $41,000 $39,000 Bargain purchase option? No Yes No No Annual lease payments Beg. of yr. End of yr. Beg. of yr. End of yr. Lessor’s implicit rate (known by lessee) 5% 6% 5% 6% Lessee’s incremental borrowing rate 5% 5% 5% 5% 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.
Situation Lease Classifaction
1
2
3
4
Explanation / Answer
Reasons:
Sutuation Lease Classification 1 Operating 2 Fiancial 3 Operating 4 Operating