Should phillips record this as capital lease

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Reference no: EM131933964

1. Phillips Corporation has entered into a monthly leasing contract for 3 years on an asset with a useful life of 5 years. The asset's estimated fair value is $28,000. The contract requires monthly lease payments of $850. There is no bargain purchase option or transfer of title in the lease contract. The discount rate is 9%. Should Phillips record this as a capital lease?

Select one:

A. Yes, because the lease term makes this a capital lease.

B. No, because the lease contract contains no transfer of ownership.

C. Yes, because the lease payments make this a capital lease.

D. No, because this is an operating lease without a bargain purchase option.

2. Bekah purchases a stock for $95 per share. At the end of the first year, the stock is worth $190, representing a 100% return. At the end of the second year, the stock has declined to $100, representing a 47.4% loss. Calculate the geometric return of this stock.

3.4%

7.14%

2.56%

8.24%

Reference no: EM131933964

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