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  3. . assume the following: 1. a three-year lease is i

. Assume the following: 1. A three-year lease is initiated on January 1, 2010, for...

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Accounting

. Assume the following: 1. A three-year lease is initiated on January 1, 2010, for equipment with an expected useful life of five years. 2. Three annual lease payments of 52,000 are required beginning on January 1, 2010, (note that the payment at the beginning of the year changes the PV computation). The lessor pays 2,000 per year for insurance on the equipment. 3. The lessee can exercise a bargain purchase option on December 31, 2012, for 10,000. The expected residual value at December 31, 2014, is 1,000. 4. The lessees incremental borrowing rate is 10% (lessors implicit rate is unknown). 5. The fair market value of the property leased is 140,000. Required: Elaborate whether the lease is operating or finance lease. Provide necessary journal entries according to lease standards.

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