Problem based on operating lease


Hall, Inc. agrees to lease equipment from White Inc. for 10 years for $50,000 at the end of each year. The equipment has a fair value of $350,000 and an estimated useful life of 10 years. The lease includes a guaranteed residual value of $20,000. In addition to the lease payments, Hall will pay $10,000 per year for a maintenance agreement. Hall can finance this lease with its bank at a 12% rate. The lessor's implicit interest rate is 10%. Use the present value factors from Appendix I near the end of your text to perform any necessary present value calculations. The Hall lease is a(n): capital lease because the lease term is more than 75% of the life of the asset. capital lease because the lease value is 90% of the fair value of the asset. operating lease because the lease value is less than 90% of the fair value of the asset. operating lease because the asset reverts to White at the end of the lease.

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Accounting Basics: Problem based on operating lease
Reference No:- TGS090303

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