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Lessee Inc. is considering the following lease. The equipment to be leased has a fair...

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Question

Accounting

Lessee Inc. is considering the following lease. The equipment to be leased has a fair value of $100,000.

Lease Information

Ownership of equipment transfers to lessee at lease-end

No

Lease includes a purchase option

No

Length of lease term

5

Economic life of the equipment

8

Alternative use of the equipment at lease-end

Yes

Annual lease payment, first payment due at end of each period.

$21,500

Guaranteed residual value

$20,000

Lessee Inc.s incremental borrowing rate is 7%. The lessee estimates an expected fair value of only $12,000 of the equipment at lease-end based on its expected usage.

In determining whether to classify this lease as finance or operating, how many lease classification criteria would this meet for Lessee Inc?

0

3

2

1

Answer & Explanation Solved by verified expert
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