1 Alessor has designed and built equipment based on the lessee specifications for molding unique plastic parts that will only be used by the lessee. After being built, the equipment will have a fair value of $200,000. The lessee has agreed to the following terms: • Lease agreement is for ten-year period • Equipment will revert back to lessor at the end of lease • Fixed payments of $10,000 will be paid annually, providing a present value of $77,217 at 5% interest • The equipment is expected to have a 25-year useful life and no residual value Based on this information, the lessee determined the lease should be classified as a finance lease. Which classification test was used to determine this assignment? O Purchase option O Alternative use O Lease term O Present value

1 Alessor has designed and built equipment based on the lessee specifications for molding unique plastic parts that will only be used by the lessee. After being built, the equipment will have a fair value of $200,000. The lessee has agreed to the following terms: • Lease agreement is for ten-year period • Equipment will revert back to lessor at the end of lease • Fixed payments of $10,000 will be paid annually, providing a present value of $77,217 at 5% interest • The equipment is expected to have a 25-year useful life and no residual value Based on this information, the lessee determined the lease should be classified as a finance lease. Which classification test was used to determine this assignment? O Purchase option O Alternative use O Lease term O Present value

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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