The Following Are Some of the Characteristics of an Asset

question 89

Essay

The following are some of the characteristics of an asset available for lease:
$$\begin{array} { | l | l | } \hline \text { Fair value of leased asset } & 120,000 \\\hline \text { Useful life } & 10 \text { years } \\\hline \text { Lease term } & 7 \text { years } \\\hline \text { Payment frequency } & \text { Annual } \\\hline \text { Payment timing } & \text { Beginning of year } \\\hline \text { Unguaranteed residual value } & 10,000 \\\hline \text { Interest rate implicit in lease (not known to lessee) } & 15 \% \\\hline \text { Lessee's incremental borrowing rate } & 14 \% \\\hline\end{array}$$ 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 capital lease using the quantitative guidelines in ASPE.

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Definitions:

Energy Of The Sun

The radiant energy produced by the Sun, a result of nuclear fusion processes, providing light and heat essential for life on Earth.

Poles

The two opposite ends of the Earth's axis, known as the North Pole and South Pole, characterized by extreme weather conditions and unique ecosystems.

Equator

An imaginary line around the Earth equidistant from the North and South Poles, dividing the Earth into the Northern and Southern Hemispheres.

Heat And Dryness

Environmental conditions characterized by elevated temperatures and low humidity, which can stress living organisms and ecosystems.