On January 1, Year 1, Indiana Water (lessor) and Koontz Lake (lessee) agreed to a 9-year lease for equipment that has an economic life of 10 years. Koontz Lake made its first annual payment on January 1, Year 2 for $3,000. Thereafter, eight more annual payments are due. Title reverts to Koontz Lake at the end of the lease term. The equipment has a fair market value at the lease inception date of $20,500. The discount rate is 5%. Which one of the lease conditions below is not met? Select one: A. The present value of the minimum lease payments is at least 90% of the leased asset's value. B. The lease agreement contains a bargain purchase option. C. The lease term is at least 75% of the asset's remaining economic life. D. The lease agreement transfers ownership of the leased asset.
On January 1, Year 1, Indiana Water (lessor) and Koontz Lake (lessee) agreed to a 9-year lease for equipment that has an economic life of 10 years. Koontz Lake made its first annual payment on January 1, Year 2 for $3,000. Thereafter, eight more annual payments are due. Title reverts to Koontz Lake at the end of the lease term. The equipment has a fair market value at the lease inception date of $20,500. The discount rate is 5%. Which one of the lease conditions below is not met? Select one: A. The present value of the minimum lease payments is at least 90% of the leased asset's value. B. The lease agreement contains a bargain purchase option. C. The lease term is at least 75% of the asset's remaining economic life. D. The lease agreement transfers ownership of the leased asset.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
![On January 1, Year 1, Indiana Water (lessor) and Koontz Lake (lessee) agreed to a 9-year lease for equipment that has an economic life of 10 years. Koontz Lake made its first annual payment on January 1, Year 2 for $3,000. Thereafter, eight more annual payments
are due. Title reverts to Koontz Lake at the end of the lease term. The equipment has a fair market value at the lease inception date of $20,500. The discount rate is 5%.
Which one of the lease conditions below is not met?
Select one:
A. The present value of the minimum lease payments is at least 90% of the leased asset's value.
B. The lease agreement contains a bargain purchase option.
C. The lease term is at least 75% of the asset's remaining economic life.
D. The lease agreement transfers ownership of the leased asset.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb7986b84-3c9d-489d-9437-e65030bcb5d0%2Fa38e4384-7b4b-485d-b37b-8acac5a8f336%2F1zcyxf6_processed.png&w=3840&q=75)
Transcribed Image Text:On January 1, Year 1, Indiana Water (lessor) and Koontz Lake (lessee) agreed to a 9-year lease for equipment that has an economic life of 10 years. Koontz Lake made its first annual payment on January 1, Year 2 for $3,000. Thereafter, eight more annual payments
are due. Title reverts to Koontz Lake at the end of the lease term. The equipment has a fair market value at the lease inception date of $20,500. The discount rate is 5%.
Which one of the lease conditions below is not met?
Select one:
A. The present value of the minimum lease payments is at least 90% of the leased asset's value.
B. The lease agreement contains a bargain purchase option.
C. The lease term is at least 75% of the asset's remaining economic life.
D. The lease agreement transfers ownership of the leased asset.
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