Jelly Co. processes jam and sells it to the public. Jelly leases equipment used in its production processes from Squishy, Inc. This year, Jelly leases a new piece of equipment from Squishy. The lease term is 5 years and requires equal rental payments of $15,000 at the beginning of each year. In addition, there is a renewal option to allow Jelly to keep the equipment one extra year for a payment at the end of the fifth year of $10,000 (which Jelly is reasonably certain it will exercise). The equipment has a fair value at the commencement of the lease of $76,024 and an estimated useful life of 7 years. Squishy set the annual rental to earn a rate of return of 5%, and this fact is known to Jelly. The lease does not transfer title, does not contain a bargain purchase option, and the equipment is not of a specialized nature. Which of the 5 lease tests does the lease qualify as a finance lease for? Choose all
Jelly Co. processes jam and sells it to the public. Jelly leases equipment used in its production processes from Squishy, Inc. This year, Jelly leases a new piece of equipment from Squishy. The lease term is 5 years and requires equal rental payments of $15,000 at the beginning of each year. In addition, there is a renewal option to allow Jelly to keep the equipment one extra year for a payment at the end of the fifth year of $10,000 (which Jelly is reasonably certain it will exercise). The equipment has a fair value at the commencement of the lease of $76,024 and an estimated useful life of 7 years. Squishy set the annual rental to earn a rate of return of 5%, and this fact is known to Jelly. The lease does not transfer title, does not contain a bargain purchase option, and the equipment is not of a specialized nature. Which of the 5 lease tests does the lease qualify as a finance lease for? Choose all
Chapter19: Lease And Intermediate-term Financing
Section: Chapter Questions
Problem 2P
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