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The following are some of the characteristics of an asset available for lease:

Requirement a. Determine the amount of lease payment that the lessor would require to lease the asset.

Requirement b. Compute the present value of minimum lease payments (PV of MLP) for the lessee.

Requirement c. Compute the present value of minimum lease payments for the lessor.

Requirement d. Evaluate whether the lessee should classify the lease as operating or capital lease using the quantitative guidelines in ASPE.

Requirement e. Evaluate whether the lessor should classify the lease as operating or capital lease using the quantitative guidelines in ASPE.

- Data table Fair value of leased asset 500,000 Useful life 9 years Lease term 6 years Annual Beginning of year Payment frequency Payment timing Residual value (unguaranteed) Interest rate implicit in the lease (not known to lessee) Lessee's incremental borrowing rate $ 25,000 4% 3% Amount Fair value of asset Present value of unguaranteed residual value Value to be recovered by annual lease payments Number of years as at implicit rate of 4% Annual payments required by lessor Amount Annual payments Present value of unguaranteed residual value PV of MLP of Lessee Amount Annual payments Present value of unguaranteed residual value PV of MLP of Lessee

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