Give an explanation using the four classification criteria.

Assignment Help Accounting Basics
Reference no: EM13867310

Garvey Company (the lessee) entered into an equipment lease with Richie Company (the lessor) on January 1 of Year 1. Use the following information to decide whether this lease qualifies as an operating or capital lease for Garvey, and give an explanation using the four classification criteria.

1. The equipment reverts back to the lessor at the end of the lease, and there is no bargain purchase option.
2. The lease term is five years and requires Garvey to make annual payments of $65,949.37 at the end of each year.
3. The discount rate is 10%, which is implicit in the lease. Garvey knows this, and this rate is lower than its incremental borrowing rate.
4. The fair value of the equipment at the lease inception is $250,000. The present value of an ordinary annuity of five payments of $65,949.37 each at 10% is $250,000.
5. The equipment has an estimated economic life of seven years and has zero residual value at the end of this time. Straight-line depreciation is used for similar assets. 

Reference no: EM13867310

Questions Cloud

Cranberry corp. has two divisions of equal size : Cranberry Corp. has two divisions of equal size: a computer manufacturing division and a data processing division. Its CFO believes that stand-alone data processor companies typically have a WACC of 8%, while stand-alone computer manufacturers typica..
Develop delivery truck schedule presentation : Develop Delivery Truck Schedule Presentation. The weekly, Monday - Thursday, Branch Inventory Replenishment Delivery Truck Schedule needs to be developed for presentation to the V.P.
Identify the conclusion these scenario : "The Universe is Better with Some Evil in It Than It Could Be if There Were No Evil" in paragraph 8 of the section on pp. 293-4. Try to identify first his conclusion there
Cascade water company : Cascade Water Company (CWC) currently has 30,000,000 shares of common stock outstanding that trade at a price of $42 per share. CWC also has 500,000 bonds outstanding that currently trade at $923.38 each. CWC has no preferred stock outstanding and ha..
Give an explanation using the four classification criteria. : Garvey Company (the lessee) entered into an equipment lease with Richie Company (the lessor) on January 1 of Year 1. Use the following information to decide whether this lease qualifies as an operating or capital lease for Garvey, and give an explana..
Why do proprietary type funds use full accrual accounting : Why do proprietary type funds use full accrual accounting?
Determine the hardness of water : The hardness of 10,000 litres of hard water sample was completely removed by passing it through a zeolite softner. The zeolite softner required 5000 litres of NaCl solution containing 1170 mg of NaCl/litre. Determine the hardness of water?
Describe the types of activities accounted : List the three categories of funds used in governmental accounting, and describe the types of activities accounted for in each category.
What do you recommend based on the expected monetary value : What do you recommend, based on the Expected Monetary value of each option? Why is that?

Reviews

Write a Review

Accounting Basics Questions & Answers

  How much control does fed have over this longer real rate

Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest.   How much control does the Fed have over this longer real rate?

  Coures:- fundamental accounting principles

Coures:- Fundamental Accounting Principles: - Explain the goals and uses of special journals.

  Accounting problems

Accounting problems,  Draw a detailed timeline incorporating the dividends, calculate    the exact Payback Period  b)   the discounted Payback Period. the IRR,  the NPV, the Profitability Index.

  Write a report on internal controls

Write a report on Internal Controls

  Prepare the bank reconciliation for company

Prepare the bank reconciliation for company.

  Cost-benefit analysis

Create a cost-benefit analysis to evaluate the project

  Theory of interest

Theory of Interest: NPV, IRR, Nominal and Real, Amortization, Sinking Fund, TWRR, DWRR

  Liquidity and profitability

Distinguish between liquidity and profitability.

  What is the expected risk premium on the portfolio

Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of which require semiannual interest payments.

  Simple interest and compound interest

Simple Interest, Compound interest, discount rate, force of interest, AV, PV

  Capm and venture capital

CAPM and Venture Capital

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd