The Following Are Characteristics of a Lease Required:
Determine the Appropriate Classification for This Lease for the l

question 91

Essay

The following are characteristics of a lease:
$$\begin{array} { | l | l | } \hline \text { Price of leased asset from manufacturer } & 312,100 \\\hline \text { Lease payments } & 75,000 \\\hline \text { Lease term } & 4 \text { years } \\\hline \text { Lease frequency } & \text { Annual } \\\hline \text { Payment timing } & \text { End of year } \\\hline \text { Guaranteed residual value } & 15,000 \\\hline \text { Interest rate implicit in the lease agreement } & 5 \% \\\hline\end{array}$$
Required:
Determine the appropriate classification for this lease for the lessor (who is not the manufacturer)and record the journal entries for the lessor for the first year of the lease.

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Definitions:

Time Horizon

The length of time over which an investment or a project is expected to be pursued or a goal to be achieved.

Operating Plan

A detailed description of how a company's operational activities will be carried out to meet goals and objectives, including production, staffing, and inventory requirements.

Trade Credit

Credit extended by suppliers in which the buyer agrees to pay for goods and services received now at a later date.

Short-Term Loan

a borrowing arrangement designed to provide funds for a short period, typically less than a year, and is used for immediate financial needs.