Lease is to be recorded as capital lease or operating lease

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Reference no: EM132032553

Marty McDonough is considering a 12-year (144-month) lease for manufacturing equipment with a life of 18 years. The minimum payments on the lease are $3,000 per month (or $36,000 per year); they are to be discounted back to the present at an 7% annual discount rate. The estimated fair value of the equipment is $350,000. Find (1) whether the lease is to be recorded as a capital lease or an operating lease; (2) show your computations and explain your reasoning.

Reference no: EM132032553

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