The Following Are Some of the Characteristics of an Asset

question 71

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:

Positive Feelings

Emotions and sentiments that induce pleasurable experiences or perceptions, often associated with happiness, contentment, and love.

Beliefs

Convictions or acceptance that something exists or is true, especially without proof.

Impression Formation

The process by which individuals form an overall view about another person based on available sensory and cognitive information.

Attribution

The method individuals use to assign reasons to actions and occurrences, crediting them either to inherent personality traits or to circumstances in the external environment.