Splish Inc. offers boat tours around the City Reservoir. The company has signed a lease for a tour boat with an

expected lifespan of six years, no estimated salvage value, and cost the leasing company $$223,000.$ The terms

of the lease are as follows:

The lease term begins on January $1,2022,$ and runs for $3$ years.

The lease requires payments of $$54,600$ each January $1,$ starting on January $1,2022,$ and each

payment includes $$5,500$ for maintenance and insurance costs.

At the end of the initial lease term, the lease can be renewed for another two years at Splish's option

for only $$28,000$ per year, including $$2,100$ for maintenance and insurance costs. The normal rental

cost of a similar used boat is $$33,000$ per year. Splish expects to renew the lease for the second term.

At the end of the lease term, the boat is to be returned to the lessor.

The lessor's implied interest rate is $6\%,$ and Splish uses straight$-$line depreciation for similar

equipment. Splish's year$-$end is May $31.$

Click here to view the factor table PRESENT VALUE OF $1.$

Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE.

$($a$)$

Assuming that Splish follows ASPE, identify how Splish should classify this lease.

Lease should be considered as Nash Corporation has signed a $5-$year lease for machinery with a cost of $$255,000.$ The asset has an economic

life of $9$ years with zero salvage value. Annual minimum lease payments made at the end of year are $$38,000$

and the discount rate is $6\%.$ There is no bargain purchase option available on the lease.

Identify whether the machinery should be treated as an operating or capital lease assuming Nash follows

ASPE.

The machinery should be treated as a$($n$)$ Sheridan Inc. entered into a five$-$year lease of equipment from Zdrinka Inc. At the lease's inception, it is

estimated that the equipment has an economic life of eight years and fair value of $$275,000.$ PV of minimum

lease payments amounts to $$237,167\mathrm{.}15.$ The lease does not transfer title or contain a bargain purchase

option.

$($a$)$

What is the nature of the lease assuming Sheridan follows IFRS?

Sheridan should classify the lease asBlossom Corporation has signed a $5-$year lease for machinery with a cost of $$232,800.$ The asset has an economic life of $9$ years with

zero salvage value. Annual minimum lease payments made at the end of year are $$50,500$ and the discount rate is $6\%.$ No maintenance

is required and there is no bargain purchase option available on the lease.

Identify whether the machinery should be treated as an operating or capital lease assuming Blossom follows ASPE.

The machinery should be treated as a$($n$)$

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