Reference no: EM132745045
Question - On January 1, 2017, Triangle Ltd. purchased non-specialized equipment for $40,000 cash and immediately leased it to Square Inc. Under the terms of the lease, Square is required to pay lease payments of $2,000 on January 1, 2017, and $5,000 on each of January 1, 2018, and January 1, 2019. At the end of the lease term, Square is required to return the equipment to Triangle Ltd.
Other pertinent information:
The estimated useful life of the equipment is 20 years. Its expected residual value is $0 (the residual value is the estimated value of the asset at the end of the asset's useful life).
Both companies have a December 31 year end.
Triangle Ltd. spent $1,000 on maintenance on June 30, 2019.
Triangle Ltd. depreciates all equipment on a straight-line basis.
The PVLP using Triangle Ltd.'s expected rate of return on transactions of this nature is $10,000.
Required -
a) Determine whether the lease should be classified as a finance lease or operating lease from the perspective of Triangle Ltd.
b) Prepare all lease-related journal entries for Triangle Ltd., including the purchase of the equipment, for the duration of the lease.
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