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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Definitions:

Dopamine Release

The process where the neurotransmitter dopamine is released from the neurons into the synapse, affecting mood and behavior.

Antagonist

An antagonist is a substance that inhibits or blocks the activity of a neurotransmitter or hormone at receptor sites in the brain.

Myasthenia Gravis

Myasthenia Gravis is an autoimmune disorder characterized by muscular weakness and fatigue, as the immune system mistakenly attacks the body's own neuromuscular junctions.

Acetylcholine Agonist

A substance that mimics the action of acetylcholine, a neurotransmitter involved in muscle activation and memory, by binding to acetylcholine receptors.