Company A has agreed to lease two snow plows from Company B. The lease has the following information: • The lease is for three years, requiring annual payments at the beginning of the year of $24,978 (annuity-due basis) • The snow plows have a fair value at the beginning of the lease of $80,000; an estimated economic life of five years; and a guaranteed residual value of $8,900 • Present value of the slow plows is $72,088 • There are no renewal options. At the end of the lease, the snow plows will be returned to Company A Which test does the lease pass in order to be classified as a finance lease? Transfer of ownership Present value Purchase option Lease term

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Company A has agreed to lease two snow plows from Company B. The lease has the following information:
• The lease is for three years, requiring annual payments at the beginning of the year of $24,978 (annuity-due basis)
• The snow plows have a fair value at the beginning of the lease of $80,000; an estimated economic life of five years; and a guaranteed residual value of $8,900
• Present value of the slow plows is $72,088
• There are no renewal options. At the end of the lease, the snow plows will be returned to Company A
Which test does the lease pass in order to be classified as a finance lease?
Transfer of ownership
O Present value
Purchase option
Lease term
Transcribed Image Text:Company A has agreed to lease two snow plows from Company B. The lease has the following information: • The lease is for three years, requiring annual payments at the beginning of the year of $24,978 (annuity-due basis) • The snow plows have a fair value at the beginning of the lease of $80,000; an estimated economic life of five years; and a guaranteed residual value of $8,900 • Present value of the slow plows is $72,088 • There are no renewal options. At the end of the lease, the snow plows will be returned to Company A Which test does the lease pass in order to be classified as a finance lease? Transfer of ownership O Present value Purchase option Lease term
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