The Shifting Sands Company Has Negotiated to Lease a Piece

question 11

Multiple Choice

The Shifting Sands Company has negotiated to lease a piece of equipment. The equipment has a useful life of 10 years. The lease is non-cancellable but there is only a minor penalty if the lessee returns the equipment before the expiry of the lease. The lease terms provide that the lease is over five years and the present value of the minimum lease payments is 60% of the fair value of the asset at the commencement of the lease. Shifting Sands records the lease payments as an expense in the statement of comprehensive income. Based on this information, which of the following statements is correct?

• A) Assets and liabilities are understated as the lease should be a finance lease.
• B) Assets and liabilities are not affected as the lease is an operating lease.
• C) The non-cancellable nature of the lease determines that it should be a finance lease.
• D) There is insufficient information to determine whether the lease is a finance or an operating lease.

---

Definitions:

Highly-Automated

Describing a system or process that extensively uses automation technology to reduce or eliminate human intervention.

Computerized Controls

Systems or processes that use computer technology to manage, regulate, or monitor operations in various applications.

Self-Management

The ability to regulate one's own emotions, thoughts, and behaviors in different situations, often to achieve personal or professional goals.

Career Success

Achieving personal satisfaction and goals in one's professional path, often measured by advancements, recognition, or fulfillment.