Morgan Corp enters into a lease of nonspecialized equipment with Hoffman Corp. The following is information about the lease: Lease term five years, no renewal option Economic life of equipment is 6 years no purchase option annual lease payments $11,000 Morgan Corp's incremetal borrowing rate is 7% Title to the asset remains with Hoffman Corm upon lease expiration The fair value of equipment is $50,000 Morgan Corp does not guarantee the residual value of equipment at end of lease term Morgan Corp pays for all maintenance of equipment separate from lease No initial direct costs incurred by Morgan corp Hoffman Corp does not provide any incentives 1. How should Morgan Corp classify the lease? 2. How would Morgan Corp measure and record this lease? 3. How would Morgan Corp measure the right-of-use asset and lease liability over the lease term?
Morgan Corp enters into a lease of nonspecialized equipment with Hoffman Corp. The following is information about the lease:
Lease term five years, no renewal option
Economic life of equipment is 6 years
no purchase option
annual lease payments $11,000
Morgan Corp's incremetal borrowing rate is 7%
Title to the asset remains with Hoffman Corm upon lease expiration
The fair value of equipment is $50,000
Morgan Corp does not guarantee the residual value of equipment at end of lease term
Morgan Corp pays for all maintenance of equipment separate from lease
No initial direct costs incurred by Morgan corp
Hoffman Corp does not provide any incentives
1. How should Morgan Corp classify the lease?
2. How would Morgan Corp measure and record this lease?
3. How would Morgan Corp measure the right-of-use asset and lease liability over the lease term?
Lease is an agreement between two parties i.e. lessor and lessee in which lessee uses the assets of lessor for a given period of time. In exchange of right of use of asset, the lessee pays an agreed amount to the lessor.
The lease can be of two types i.e. 1) Finance lease or 2) Operating lease. The types of lease depends on the various factors of the lease contract.
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
