The following are the characteristics of a lease:
Required:
Determine the present value of minimum lease payments (MLP)and the appropriate classification of this lease for the lessee.
Definitions:
Compounded Monthly
A method of calculating interest where the accrued interest is added to the principal each month before the next interest calculation.
Compounded Quarterly
The technique of determining interest by taking into account the original principal sum and the interest that has accrued in earlier cycles, with this process being carried out every three months.
Compounded Semi-Annually
Interest on an investment is calculated and added to the principal every six months, with future interest then calculated on the new total.
Fair Market Value
The price at which an asset would change hands between a willing buyer and a willing seller, both having reasonable knowledge of all the relevant facts.
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