Lease term (years)4444Asset’s useful life (years)6566Asset’s fair value$44,000$45,000$41,000$38,000Purchase option that is reasonably certain to be exercised?NoYesNoNoAnnual lease paymentsBeg. of yr.End of yr.Beg. of yr.End of yr.Lessor’s implicit rate (known by lessee)5%6%5%6%Lessee’s incremental borrowing rate5%5%5%5% Each of the four independent situations above describes a lease requiring annual lease payments of $10,000. For each situation, determine the appropriate lease classification by the lessee. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Lease is an agreement whereby the lessor conveys to the lessee in return for payment the right to…

Answered: Yes No No Annual lease payments Beg. of…

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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Lease term (years)	4	4	4	4
Asset’s useful life (years)	6	5	6	6
Asset’s fair value	$44,000	$45,000	$41,000	$38,000
Purchase option that is reasonably
certain to be exercised?	No	Yes	No	No
Annual lease payments	Beg. of yr.	End of yr.	Beg. of yr.	End of yr.
Lessor’s implicit rate (known by lessee)	5%	6%	5%	6%
Lessee’s incremental borrowing rate	5%	5%	5%	5%

Each of the four independent situations above describes a lease requiring annual lease payments of $10,000. For each situation, determine the appropriate lease classification by the lessee. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

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