Crane Co. processes jam and sells it to the public. Crane leases equipment used in its production processes from Larkspur, Inc. This year, Crane leases a new piece of equipment from Larkspur. The lease term is 5 years and requires equal rental payments of $17.000 at the beginning of each year. In addition, there is a renewal option to allow Crane to keep the equipment one extra year for a payment at the end of the fifth year of $13.000 (which Crane is reasonably certain it will exercisel. The equipment has a fair value at the commencement of the lease of $87,467 and an estimated useful life of 7 years. Larkspur set the annual rental to earnarate of return of 5%, and this fact is known to Crane. The lease does not transfer title, does not containa bargain purchase option, and the equipment is not of a specialized nature.
Crane Co. processes jam and sells it to the public. Crane leases equipment used in its production processes from Larkspur, Inc. This year, Crane leases a new piece of equipment from Larkspur. The lease term is 5 years and requires equal rental payments of $17.000 at the beginning of each year. In addition, there is a renewal option to allow Crane to keep the equipment one extra year for a payment at the end of the fifth year of $13.000 (which Crane is reasonably certain it will exercisel. The equipment has a fair value at the commencement of the lease of $87,467 and an estimated useful life of 7 years. Larkspur set the annual rental to earnarate of return of 5%, and this fact is known to Crane. The lease does not transfer title, does not containa bargain purchase option, and the equipment is not of a specialized nature.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Crane Co. processes jam and sells it to the public. Crane leases equipment used in its production processes from Larkspur, Inc. This
year, Crane leases a new piece of equipment from Larkspur. The lease term is 5 years and requires equal rental payments of $17,000 at
the beginning of each year. In addition, there is a renewal option to allow Crane to keep the equipment one extra year for a payment at
the end of the fifth year of $13,000 (which Crane is reasonably certain it will exercise). The equipment has a fair value at the
commencement of the lease of $87.467 and an estimated useful life of 7 years. Larkspur set the annual rental to earn arate of return
of 5%, and this fact is known to Crane. The lease does not transfer title, does not contain a bargain purchase option, and the equipment
is not of a specialized nature.
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How should Crane classity this lease?
Crane should classify the lease as a/an
O lease.
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