On January 1, 2020, Fern Corp

question 63

Multiple Choice

On January 1, 2020, Fern Corp. enters into an agreement with Nicki Rentals Inc. to lease a machine from them. Both corporations adhere to ASPE. The following data relate to the agreement:
1) The term of the non-cancellable lease is three years with no renewal option. Payments of $ 543,244 are due on December 31 of each year.
2) The fair value of the machine on January 1, 2020, is $ 1,400,000. The machine has a remaining economic life of 10 years, with no residual value. The machine reverts to the lessor upon the termination of the lease.
3) Fern depreciates all its machinery on a straight-line basis.
4) Fern's incremental borrowing rate is 10%. Fern does not have knowledge of the 8% implicit rate used by Nicki.
5) Immediately after signing the lease, Nicki discovers that Fern is the defendant in a lawsuit that is sufficiently material to make collectibility of future lease payments doubtful.
From Fern's viewpoint, what type of lease is this?

• A) operating lease
• B) finance lease
• C) manufacturer or dealer lease
• D) other finance lease

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Potential Clients

Individuals or entities that may become customers or patrons of a service or product in the future.

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