On 10 December 2019, Food Complex Inc. (a private company) entered into a nine-year agreement tolease equipment from Williams Ltd. The terms of the lease are as follows:The lease term will begin on 1 January 2020.The fair value of the equipment at the inception of the lease is $180,100. The equipment's expecteduseful life is nine years, at which time it will be obsolete.Food Complex Inc.'s incremental borrowing rate is 9%.Lease payments are $25,300 per year, payable at the beginning of each lease year. That is, thefirst payment will be due January 1, 2020.The implicit rate in the lease is 10%.Food Complex Inc. applies ASPE accounting standards.Required:Should Food Complex Inc. account for this lease as a capital lease or an operating lease? Explain youranswer using all of the ASPE criteria discussed in class. Show your computations to support the PVcalculations.

Lease term 9 year Fair value of the asset= $180100 Incremental borrowing rate= 9% Lease payments=…

Answered: On 10 December 2019, Food Complex Inc.…

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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