Reference no: EM132466197
Consider the following lease characteristics:
Lease term 4 years
Asset's useful life 6 years
Asset's fair value $40,000
Annual lease payment $9,000
Annual lease payments occur at: Beginning of year
Lessor's implicit rate (known by lessee) 5%
Bargain purchase option exists? No
Question 1) Determine the present value of the annual lease payments. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided. Round present value to the nearest whole dollar.)
Question 2) Determine the appropriate lease classification by the lessee (operating or finance).