O january 1 2010 carey inc entered into a noncancellable

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Reference no: EM13572138

On January 1, 2010, Carey, Inc., entered into a noncancellable agreement, agreeing to pay $3,500 at the end of each year for four years to acquire a new computer system having a market value of $10,200. The expected useful life of the computer is also four years, and the computer will be depreciated on a straight line basis with no salvage value. The interest rate used by the lessor to determine the annual payments was 14 %. Under the terms of the lease, Carey, inc., has an option to purchase the computer for $1 on January 1, 2014.Explain why Carey inc. should account for the lease as a capital lease rather then an operating lease.

Reference no: EM13572138

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