On January 1, 2020, Flower Corp. enters into an agreement with Nicki Rentals Inc. to lease a machine from them. Both corporations adhere to ASPE. The following data relate to the agreement: (i) The term of the non-cancellable lease is three years with no renewal option. Payments of $ 543,244 are due on December 31 of each year. (ii) The fair value of the machine on January 1, 2020, is $ 1,400,000. The machine has
On January 1, 2020, Flower Corp. enters into an agreement with Nicki Rentals Inc. to lease a machine from them. Both corporations adhere to ASPE. The following data relate to the agreement: (i) The term of the non-cancellable lease is three years with no renewal option. Payments of $ 543,244 are due on December 31 of each year. (ii) The fair value of the machine on January 1, 2020, is $ 1,400,000. The machine has
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On January 1, 2020, Flower Corp. enters into an agreement with Nicki Rentals Inc. to lease a machine from them. Both corporations adhere to ASPE. The following data relate to the agreement:
(i) The term of the non-cancellable lease is three years with no renewal option. Payments of $ 543,244 are due on December 31 of each year.
(ii) The fair value of the machine on January 1, 2020, is $ 1,400,000. The machine has a remaining economic life of 10 years, with no residual value. The machine reverts to the lessor upon the termination of the lease.
(iii) Flowerdepreciates all its machinery on a straight-line basis.
(i) The term of the non-cancellable lease is three years with no renewal option. Payments of $ 543,244 are due on December 31 of each year.
(ii) The fair value of the machine on January 1, 2020, is $ 1,400,000. The machine has a remaining economic life of 10 years, with no residual value. The machine reverts to the lessor upon the termination of the lease.
(iii) Flower
(iv) Flower’s incremental borrowing rate is 10%. Flower does not have knowledge of the 8% implicit rate used by Nicki.
(v) Immediately aftersigning the lease, Nicki discovers that Flower is the defendant in a lawsuit that is sufficiently material to make collectability of future lease payments doubtful.
From Flower’s viewpoint, what type of lease is this?
Select one:
a.
operating lease..
b.
finance lease.
c.
manufacturer or dealer lease..
d.
other finance lease.
e.
Buy back lease.
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