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Decide Whether Each of the Following Lease Agreements Should Be

question 36

Essay

Decide whether each of the following lease agreements should be recorded as a capital lease or an operating lease:
a)The present value of the lease payments is 75% of the fair value of the leased asset at the start of the lease.The lease term is for 6 years; the estimated useful life of the leased asset is 10 years.There is a bargain purchase agreement for the lessee to purchase the leased asset at well below fair value at the end of the lease term.
b)The present value of the lease payments is 90% of the fair value of the leased asset at the start of the lease.The lease term is for 2 years; the estimated useful life of the leased asset is 10 years.The leased asset reverts back to the lessor at the end of the lease.
c)The lease transfers ownership of the leased asset to the lessee at the end of the lease.The present value of the lease payments is 75% of the fair value of the leased asset at the start of the lease.The lease term is for 3 years; the estimated useful life of the leased asset is 10 years.
d)The lease agreement doesn't contain a bargain purchase agreement.The leased asset reverts back to the lessor at the end of the lease agreement.The present value of the lease payments is 85% of the fair value of the leased asset at the start of the lease.The lease term is for 10 years; the estimated useful life of the leased asset is 15 years.


Definitions:

Attitudes Towards Money

Individual or collective perceptions and behaviors regarding the use, management, and significance of financial resources.

Seniority-Based Rewards

Compensation or benefits allocated to employees based primarily on their length of service or tenure with an organization.

Higher Turnover

An increased rate at which employees leave a company and are replaced, potentially indicating issues with job satisfaction or organizational culture.

Job Status-Based Rewards

Rewards or recognition provided to employees based on their position, title, or level within the organization.

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