Lessee Inc. is considering the following lease. The equipment to be leased has a fair...
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Accounting
Lessee Inc. is considering the following lease. The equipment to be leased has a fair value of $100,000.
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| 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?
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3
2
1
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