On january 1 st 2006 the sas company entered into a lease

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Reference no: EM13355530

On January 1 st, 2006, the SAS Company entered into a lease where they agreed to make five annual payments of $224,000 beginning December 31 st, 2006. They correctly calculated that, the PV of the minimum lease payments was $894,000. The lease asset, a high printing press, had a fair market value of $1 million at 1/1/06. There was a $1 purchase option so they knew the lessor's implicit rate of 8%. SAS treated this lease as an operating lease, even though they thought that a $1 purchase option was a really good deal!

SAS's auditors did not even look at this lease last year. However, at 12/31/07 their new auditors looked closely, and they told SAS that this should have been recorded as a capital lease, because the purchase option was a bargain.

Prepare the entries that fix this error. SAS normally depreciated assets like printing presses over five years. Assume that the 12/31/07 books are still open.

Reference no: EM13355530

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