Cords depreciation and interest expense. llents is not correct for a capital lea
ID: 2523212 • Letter: C
Question
Cords depreciation and interest expense. llents is not correct for a capital lease? 3. The lessee records a leased asset. C. The lessor transfers title at the beginning of the lease term. D. The lessee records depreciation and lease revenue. 3. Noncancellable term. Annual lease Annual interest rate-9% Lease term-8 vears Asset's useful life-10 years payment 40.000 2. 5. No BPO or transfer of ownership specified in contract 6. The lease is issued on Jan. 1 ,2011 All payments will be made at the beginning of cach period (Jan 1.) 8. Lease payments are collectable All transaction costs are predictable ) Is it a capital lease or operating lease? Why?Explanation / Answer
1. It is a Capital Lease
A capital lease is a lease that transfers substantially all the risks and rewards incident to ownership of an asset.
Lease period covers the major useful life of the assets
The title may or may not eventually be transferred.
In case of a non-cancellable lease is a lease rental has to be paid by the lease so in substance the leased assets will be with the lease.
3.
Therefore, Value of Lease is 248254.80
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5.
Years Lease Rental Discount Factor Present Value 0 40,000.00 1 40,000.00 1 40,000.00 0.9259259 37,037.04 2 40,000.00 0.8573388 34,293.55 3 40,000.00 0.7938322 31,753.29 4 40,000.00 0.7350299 29,401.19 5 40,000.00 0.6805832 27,223.33 6 40,000.00 0.6301696 25,206.79 7 40,000.00 0.5834904 23,339.62 Present Value of Lease Rental 248,254.80Related Questions
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