Question

es Lase 4.0373 sor- S C Study Guide Problems dot, face Peray leas- teras GELMthod Chapter 21 Problem treet Figkas Johnson, Inc. leased equipment from Broadway Company under a five-year vees les requiring equal annual payments of $360,000 with the first payment due at easeless inception. The lease does not transfer ownership nor is there a bargain purname option. The equipment has a 5-year useful life and no salvage value. Johnson.no . incremental borrowing rate is 12% and the rate implicit in the lease which is No Johnson, Inc.) is 10%. fire PV Annuity Due PV Ordinary Annuity 10%, 5 periods 4.1699 3.7908 12%, 5 periods 3.6048 2 1. Is this a capital lease? a. Yes - Because the lease is greater than 75% of the useful lite of equipment. i. 5 years/5years = 100% 2. Do we use the annuity or annuity due factor? in the annuity due factor because a payment is due at Isase Liabilit right-of-use Asset Lease liabilit

Answer 1

Solution 1:

Yes, this is a capital lease because the lease is greater than 75% of useful life of equipment.

5 years / 5 years =100%

Solution 2:

We should use annuity due factor for calculating fair value of lease because first payment is made at beginning of lease.