Classifying LeasesThe following separate scenarios relate to a 5-year lease, pertaining to equipment with a fair value of $50,000. Assume in all scenarios thatpayments are made at the beginning of the period.1. Lease payments include a fixed payment of $10,000 per year.2. Lease payments include a fixed payment of $10,000 per year, plus $500 for insurance and $600 for a maintenance contract.3. Lease payments will be $10,000 in the first year and will increase by 3% (calculated on the previous year's payment) for each of thefollowing 4 years.4. Lease payments will be $10,000 in the first year and will increase each of the following years by the increase in the CPI from the precedingyear. The current CPI is 120 and is expected to increase to 122 at the end of the next year.5. Lease payments will be $10,000 in the first year and will increase each of the following years by (a) the increase in the CPI from thepreceding year, or (b) 3%, whichever is greater. The current CPI is 120 and is expected to increase to 122 at the end of the next year.6. Lease payments include a fixed payment of $10,000 per year. In addition, the lessee has guaranteed the residual value of the equipmentfor $2,000 at the end of the lease.RequiredFor each of the six separate scenarios outlined above, and considering only the fair value lease criterion, determine how the lessee wouldclassify the lease, assuming a discount rate of 7%.Note: Round amounts in table to the nearest whole dollar.PV of Lease Payments 90% of Fair Value Lease Classification$S2 SS3 $4 S5 $6 SSSSS÷●+●:

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Answered: Required For each of the six separate…

Required For each of the six separate scenarios outlined above, and considering only the fair value lease criterion, determine how the lessee would classify the lease, assuming a discount rate of 7%.

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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