A is corrent. In a capital lease, the lessee records as an asset the lower of (1) the present value (PV) of the minimum lease payments, or (2) the FV of the leased asset. Since the FV is not given, we must assume that the asset is to be recorded at the PV of the minimum lease payments. The minimum lease payments must include any bargain purchase options (BPO). However, the $40,000 purchase option in this problem is not a BPO, since $40,000 approximates the expected fair value of the machine on the option exercise date. Therefore, the PV of the minimum lease payments is $178,500 (5.95 x $30,000). Note that the cost of the asset to the lessor ($150,000) is not relevant to the lessee.
B is incorrect. In a capital lease, the lessee records as an asset the lower of (1) the present value (PV) of the minimum lease payments, or (2) the FV of the leased asset. Since the FV is not given, we must assume that the asset is to be recorded at the PV of the minimum lease payments. The minimum lease payments must include any bargain purchase options (BPO). However, the $40,000 purchase option in this problem is not a BPO, since $40,000 approximates the expected fair value of the machine on the option exercise date. Therefore, the PV of the minimum lease payments is $178,500 (5.95 x $30,000). Note that the cost of the asset to the lessor ($150,000) is not relevant to the lessee.
C is incorrect. In a capital lease, the lessee records as an asset the lower of (1) the present value (PV) of the minimum lease payments, or (2) the FV of the leased asset. Since the FV is not given, we must assume that the asset is to be recorded at the PV of the minimum lease payments. The minimum lease payments must include any bargain purchase options (BPO). However, the $40,000 purchase option in this problem is not a BPO, since $40,000 approximates the expected fair value of the machine on the option exercise date. Therefore, the PV of the minimum lease payments is $178,500 (5.95 x $30,000). Note that the cost of the asset to the lessor ($150,000) is not relevant to the lessee.
D is incorrect. In a capital lease, the lessee records as an asset the lower of (1) the present value (PV) of the minimum lease payments, or (2) the FV of the leased asset. Since the FV is not given, we must assume that the asset is to be recorded at the PV of the minimum lease payments. The minimum lease payments must include any bargain purchase options (BPO). However, the $40,000 purchase option in this problem is not a BPO, since $40,000 approximates the expected fair value of the machine on the option exercise date. Therefore, the PV of the minimum lease payments is $178,500 (5.95 x $30,000). Note that the cost of the asset to the lessor ($150,000) is not relevant to the lessee.
|
