ML Leased a Computer to LH on January 1, 2014

question 180

Essay

ML leased a computer to LH on January 1, 2014.The lease was a five year fixed, non-cancellable agreement.The payments were finalized at $2,380 per year with the first payment on January 1, 2014 and ML paid $9,500 for the computer.Carrying value is equal to fair value.The lease is deemed a finance lease.Based on the above information, what type of lease is this for the lessor.Prepare the journal entries for at the inception of the lease using the gross method.

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Definitions:

Publicly Traded

A company whose shares are bought and sold on stock exchanges, allowing investors to own a part of the company.

Private Companies

Businesses whose ownership is private and shares are not traded on public stock exchanges.

Measurement Principles

Guidelines that dictate how the economic activities of a company are captured in its financial statements.

Historical Cost

The original monetary value of an asset, reflecting the purchase or production cost without adjustments for inflation or market value changes.