The lease agreements are commonly of two types- Financial lease agreement and Operating lease agreement Financial lease agreement is a lease agreement or a way of providing finance. In this type of lease legal owner is the finance company for the duration of the lease and on the other hand lessee has operating control as well as substantial share of risk and return. But in operating lease all risk and reward are not transferred to the lessee with the asset transfer. We have to determine in the three cases whether they are finance lease or operating lease.

Question

A machine costing $77,500 with a 5-year life and $4,700 residual value was purchased January 2. Compute depreciation for each of the 5 years, using the double-declining-balance method. Year1 Y2 Y3 Y4 Y5

Answer 1

Question

Chapter 14, Problem 20E

To determine

Concept Introduction:

The lease agreements are commonly of two types-

Financial lease agreement and

Operating lease agreement

Financial lease agreement is a lease agreement or a way of providing finance. In this type of lease legal owner is the finance company for the duration of the lease and on the other hand lessee has operating control as well as substantial share of risk and return.

But in operating lease all risk and reward are not transferred to the lessee with the asset transfer.

We have to determine in the three cases whether they are finance lease or operating lease.

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