Please use the information below to calculate the [1] 75% and 90% rule and [2] converting...

50.1K

Verified Solution

Question

Finance

Please use the information below to calculate the [1] 75% and90% rule and [2] converting operating lease to capital lease.Question 1 - AAA corporation leases an asset to BBB corporation for12 years beginning Jan 1, year 1 at annual rental of $7,000. Thefirst payment is due at the beginning of the first year. Theasset's economic life is 15 years and FMV of the asset at theinception of the lease $50,000. The lease require the BBB to pay$1,000 annual executory cost. The lease does not transfer ownershipnon contain a bargain purchase option. Interest 4%. Please use 75%and 90% to calculate qualification.

Answer & Explanation Solved by verified expert

3.9 Ratings (769 Votes)

As per the current GAAP rules a lease needs to be treated as a capital lease if any of the below given four criterions is met 1 Ownership of the leased asset transfers to the lessee upon completion of the lease 2 There is a bargain purchase option in the See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Please use the information below to calculate the [1] 75% and90% rule and [2] converting operating lease to capital lease.Question 1 - AAA corporation leases an asset to BBB corporation for12 years beginning Jan 1, year 1 at annual rental of $7,000. Thefirst payment is due at the beginning of the first year. Theasset's economic life is 15 years and FMV of the asset at theinception of the lease $50,000. The lease require the BBB to pay$1,000 annual executory cost. The lease does not transfer ownershipnon contain a bargain purchase option. Interest 4%. Please use 75%and 90% to calculate qualification.