Assume the Following Facts Relating to a Lease: Leased Asset

question 20

Multiple Choice

Assume the following facts relating to a lease: Leased asset, new at inception of lease term.Estimated useful life, 14 years.
Lease term, 8 years; asset returns to lessor.
Interest rate implicit in the lease, 10 percent (known by lessee) .Lessee's marginal borrowing rate, 12 percent.
Amount of each lease payment, $2,000.Lessor's cost of the leased asset, $15,164.
Market value of leased asset at inception of the lease term, $15,164 Lease payments are due at the end of each period.
From the perspective of the lessee, this lease should be classified as a(n) :

• A)operating lease.
• B)finance lease.
• C)sales-type lease.
• D)direct financing lease.

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Definitions:

Accumulator

A storage structure for pressurized brake fluid in many ABS systems and the Powermaster brake booster system.

Refrigeration System

A system designed to remove heat from an enclosed space or from a substance for the purpose of lowering its temperature and/or maintaining it below ambient level.

Receiver/Dryer

A component in a vehicle's air conditioning system that removes moisture from the refrigerant and acts as a storage tank for the refrigerant when the system is not in use.

Passenger Compartment

The area of a vehicle designed to accommodate passengers, excluding the trunk or cargo space.