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How will this lease be classified by Zimmer

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Reference no: EM133088019

Question - On January 1st, 2021, Zimmer Contracting (lessee) signed an agreement to lease a bulldozer from Sting Supply (lessor) for a period of three years. The lease contract requires payments of $10,000 on December 31st of 2021, 2022 and 2023. The bulldozer can be purchased by Zimmer at the end of the lease for a nominal (i.e., very small) amount. The bulldozer has an estimated economic life of 6 years. The market rate of interest was 10% at the time of signing the lease. The fair market value of the bulldozer at the time of signing the agreement was $29,000. Zimmer is a private company following ASPE.

Required -

1. How will this lease be classified by Zimmer? Explain.

2. Prepare the journal entry, if any, by Zimmer on January 1st, 2021 to record the lease agreement.

Reference no: EM133088019

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