On january 1st 2008 the green company entered into a lease, Ask an Expert

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On January 1st, 2008, the Green Company entered into a lease for a high-tech printing press where Green agreed to make five annual payments of $224,000 beginning December 31st, 2008. They correctly find outd that the PV of the minimum lease payments was $894,000. The lease specified a $1 purchase option so they knew the lessor's implicit rate of 8%. Green treated this lease as an operating lease, even though they thought that a $1 purchase option was a really good deal!

Green's auditors did not even look at this lease last year. However, at 12/31/09 its new auditors looked closely, and they told Green that this should have been recorded as a capital lease, because the purchase option was a bargain.

Prepare the entries that fix this error. Green normally depreciates assets like printing presses over five years. The 2008 books have been closed, but the 2009 books are still open.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M956118

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