ABC Company leased equipment to Best Corporation under a lease agreement that qualifies as a direct finance lease. The cost of the asset is OMR 22,000. The lease contains a bargain purchase option that is effective at the end of the fifth year. The expected economic life of the asset is five years. The lease term is 5 years. The asset is expected to have a residual value of OMR 2,000 at the end of ten years. Using the straight-line method, what would Best record as annual depreciation? Select one: a. OMR 2,000 b. OMR 4,500 c. OMR 5,000 d. OMR 4,000

ABC Company leased equipment to Best Corporation under a lease agreement that qualifies as a direct finance lease. The cost of the asset is OMR 22,000. The lease contains a bargain purchase option that is effective at the end of the fifth year. The expected economic life of the asset is five years. The lease term is 5 years. The asset is expected to have a residual value of OMR 2,000 at the end of ten years. Using the straight-line method, what would Best record as annual depreciation? Select one: a. OMR 2,000 b. OMR 4,500 c. OMR 5,000 d. OMR 4,000

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter20: Accounting For Leases

Section: Chapter Questions

Problem 10GI: Owens Company leased equipment for 4 years at 50,000 a year with an option to renew the lease for 6...

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Owens Company leased equipment for 4 years at 50,000 a year with an option to renew the lease for 6 years at 2,000 per month or to purchase the equipment for 25,000 (a price considerably less than the expected fair value) after the initial lease term of 4 years. Why would this lease qualify as a finance lease?
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