The Following Are Some of the Characteristics of an Asset

question 52

Essay

The following are some of the characteristics of an asset available for lease:
$$\begin{array} { | l | l | } \hline \text { Fair value of leased asset } & 50,000 \\\hline \text { Lease term } & 3 \text { years } \\\hline \text { Payment frequency } & \text { Annual } \\\hline \text { Payment timing } & \text { Beginning of year } \\\hline \text { Guaranteed residual value } & 15,000 \\\hline \text { Interest rate implicit in lease (not known to lessee) } & 9 \% \\\hline \text { Lessee's incremental borrowing rate } & 3 \% \\\hline\end{array}$$ Requirements:
a.Determine the amount of lease payment that the lessor would require to lease the asset.
b.Compute the present value of minimum lease payments for the lessee.
c.Compute the present value of minimum lease payments for the lessor.
d.Evaluate whether the lessee should classify the lease as operating or finance.

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Definitions:

Induced Hypocrisy

A psychological state or condition whereby individuals are made to recognize the contradiction between their attitudes and behavior, often to prompt a change.

Paradigm

A typical example or pattern of something; a model that is especially prevalent in scientific theories or how particular sets of rules define a scientific discipline.

Counterattitudinal Behavior

Actions that are contrary to one's personal beliefs, attitudes, or values, which can sometimes lead to a change in those attitudes due to cognitive dissonance.

Spreading Alternatives

The act of diversifying choices or options in decision-making or behavior.