2nd Edition

ISBN: 9780134730370

Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella

Publisher: PEARSON

Concept explainers

Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.

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Textbook Question

Chapter 18, Problem 18.2MC

Zhou Systems signed a 5-year lease at the beginning of the current year. The leased equipment is from standard dealer stock and has an economic life of 8 years and a fair value of $21,500. Under the terms of the lease, Zhou is required to pay $4,500 at the beginning of each year. There is no purchase option and Zhou must return the equipment at the end of the lease term. The lessor does anticipate there will be a positive residual value but it is unguaranteed Zhou knows the lessor’s implicit rate is 6%. The proper classification of this lease for the lessee is:

a. Operating lease
b. Finance lease
c. Direct financing lease
d. Sales-type lease

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Chapter 18, Problem 18.1MC

Chapter 18, Problem 18.3MC

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Chapter 18 Solutions

Intermediate Accounting (2nd Edition)

Ch. 18 - Does the lessee become the owner of the equipment...Ch. 18 - Prob. 18.2Q Ch. 18 - Prob. 18.3Q Ch. 18 - What are typical terms and provisions in a lease...Ch. 18 - How does a lease offer business and financial...Ch. 18 - Prob. 18.6Q Ch. 18 - How is the right-of-use asset measured?Ch. 18 - What components are included in a lease contract?Ch. 18 - How does a lessee separate lease and nonlease...Ch. 18 - How does a lessor separate lease and nonlease...

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Solution Summary: The author explains that lease is a long term rent agreement between two parties that is often clubbed with other clauses relating to maintenance or sale at the end of the lease period.

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Chapter 18 Solutions