|
Situation |
|
|
|
1 |
2 |
3 |
4 |
| Lease term (years) |
4 |
4 |
4 |
4 |
| Asset's useful life (years) |
6 |
5 |
6 |
6 |
| Asset's fair value |
$44,000 |
$43,000 |
$41,000 |
$39,000 |
| Bargain purchase option? |
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.