Belardo Manufacturing is considering a lease to acquire new equipment. The useful life of the asset is 10 years. Belardo can lease the equipment from Weber City Bank for $5,000 per year over an 9-year period. The lease does not contain a purchase option. There is no transfer of ownership clause in the contract. Should Belardo account for this lease as an operating or a finance lease? Future Value of $1 table Future Value of an Ordinary Annuity table Future Value of an Annuity Due table Present Value of $1 table Present Value of an Ordinary Annuity table Present Value of an Annuity Due table Begin by identifying any of the Group I criteria that Belardo meets. (Select all that apply. If there is insufficient information to determine if a specific criteria is met, do not check the box for that criteria.) 1. The lease transfers ownership to the lessee at the end of the lease term. 2. The lessee is given an option to purchase the asset that the lessee is reasonably certain to exercise. 3. The lease term is for a major part of the economic life of the asset. 4. The present value of the sum of the lease payments and any residual value the lessee guarantees to pay (that is not otherwise included in the lease payment) is equal to substantially all of the asset's fair value. 5. The leased asset is of a specialized nature. 6. The lease does not meet any Group I lease criteria. This is a(n) lease for the lessee (Belardo) because of the Group I criteria is(are) met.
Belardo Manufacturing is considering a lease to acquire new equipment. The useful life of the asset is 10 years. Belardo can lease the equipment from Weber City Bank for $5,000 per year over an 9-year period. The lease does not contain a purchase option. There is no transfer of ownership clause in the contract. Should Belardo account for this lease as an operating or a finance lease? Future Value of $1 table Future Value of an Ordinary Annuity table Future Value of an Annuity Due table Present Value of $1 table Present Value of an Ordinary Annuity table Present Value of an Annuity Due table Begin by identifying any of the Group I criteria that Belardo meets. (Select all that apply. If there is insufficient information to determine if a specific criteria is met, do not check the box for that criteria.) 1. The lease transfers ownership to the lessee at the end of the lease term. 2. The lessee is given an option to purchase the asset that the lessee is reasonably certain to exercise. 3. The lease term is for a major part of the economic life of the asset. 4. The present value of the sum of the lease payments and any residual value the lessee guarantees to pay (that is not otherwise included in the lease payment) is equal to substantially all of the asset's fair value. 5. The leased asset is of a specialized nature. 6. The lease does not meet any Group I lease criteria. This is a(n) lease for the lessee (Belardo) because of the Group I criteria is(are) met.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Belardo Manufacturing is considering a lease to acquire new equipment. The useful life of the asset is
10 years. Belardo can lease the equipment from Weber City Bank for $5,000 per year over an 9-year
period. The lease does not contain a purchase option. There is no transfer of ownership clause in the
contract. Should Belardo account for this lease as an operating or a finance lease?
Future Value of $1 table Future Value of an Ordinary Annuity table
Future Value of an Annuity Due table
Present Value of $1 table Present Value of an Ordinary Annuity table
Present Value of an Annuity Due table
Begin by identifying any of the Group I criteria that Belardo meets. (Select all that apply. If there is
insufficient information to determine if a specific criteria is met, do not check the box for that criteria.)
1. The lease transfers ownership to the lessee at the end of the lease term.
2. The lessee is given an option to purchase the asset that the lessee is reasonably certain to
exercise.
3. The lease term is for a major part of the economic life of the asset.
4. The present value of the sum of the lease payments and any residual value the lessee
guarantees to pay (that is not otherwise included in the lease payment) is equal to
substantially all of the asset's fair value.
5. The leased asset is of a specialized nature.
6. The lease does not meet any Group I lease criteria.
This is a(n)
lease for the lessee (Belardo) because
of the Group I
criteria is(are) met.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education