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Waldrop Airline entered into an agreement to lease equipment from Wilson Company. In each scenario, identify whether Waldrop would classify the slease a an operating or finance lease under IAS 17. Next, indicate whether the lease would be classified as operating or capital under FASB Statement No. 13. Assume each scenario is independent and that Waldrop has not met any of the other requirements for capitalizing leases.

a. At the end of the lease term, ownership of the equipment will be transferred to Waldrop Airline.

b. The fair market value of the equipment is expected to be $100,000 at the end of the lease term. Waldrop has the option to buy the equipment at the conclusion of the lease for $20,000.

c. The equipment has a useful life of 10 years and the term of the lease is 7 years.

d. The present value of minimum lease payments is $22,300 and the fair value of the leased equipment is $25,000.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9402914

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