Fieldman Company purchased a machine for leasing purposes on January 1, 2020, for $1,500,000. The machine...

Fieldman Company purchased a machine for leasing purposes on January 1, 2020, for $1,500,000. The machine has a 10-year life, has no residual value, and will be depreciated on a straight-line basis. On January 2, 2020, Fieldman leased the machine to Dahlia Company for $150,000 a year for a five-year period ending December 31, 2024. Dahlia does not guarantee a residual value of the machine at lease-end, although Dahlia can purchase the machine at the end of the lease term for 40% of the estimated residual value which is a significant discount. Dahlia paid $150,000 to Fieldman on January 2, 2020, the first annual payment date.

How would Fieldman Company and Dahlia Company classify the lease, considering a 5% implicit interest rate for both parties?

Fieldman Company Dahlia Company

	A.	Operating Lease Finance Lease
	B.	Sales Type Lease Finance Lease
	C.	Finance Lease Finance Lease
	D.	Operating Lease Operating Lease

Expert Solution

Answer C. Finance Lease Finance lease

Workings

ekkarill92 answered 2 years ago

On January 1, 2020, a machine was purchased for $900,000 by Young Co. The machine is...

On January 1, 2020, a machine was purchased for $900,000 by Young Co. The machine is expected to have an 8-year life with no salvage value. It is to be depreciated on a straight-line basis. The machine was leased to St. Leger Inc. for 3 years on January 1, 2020, with annual rent payments of $150,955 due at the beginning of each year, starting January 1, 2020. The machine is expected to have a residual value at the end of...

Elf Leasing purchased a machine for $410,000 and leased it to IGA, Inc. on January 1,...

Elf Leasing purchased a machine for $410,000 and leased it to IGA, Inc. on January 1, 2018. Lease description: Quarterly rental payments $23,504 at beginning of each period Lease term 6 years (24 quarters) No residual value; no BPO Economic life of machine 6 years Implicit interest rate and lessee’s incremental borrowing rate 12% Fair value of asset $410,000 Required: Prepare appropriate entries for both IGA and Elf Leasing from the beginning of the lease through the second rental payment...

Elf Leasing purchased a machine for $420,000 and leased it to IGA, Inc. on January 1,...

Elf Leasing purchased a machine for $420,000 and leased it to IGA, Inc. on January 1, 2018. Lease description: Quarterly rental payments $27,408 at beginning of each period Lease term 5 years (20 quarters) No residual value; no BPO Economic life of machine 5 years Implicit interest rate and lessee’s incremental borrowing rate 12% Fair value of asset $420,000 Required: Prepare appropriate entries for both IGA and Elf Leasing from the beginning of the lease through the second rental payment...

Part 2 (Application) On January 1, 2017, a machine was purchased for $400,000 by Younger Leasing...

Part 2 (Application) On January 1, 2017, a machine was purchased for $400,000 by Younger Leasing Co. The machine is expected to have a 10-year life with no salvage value. It is to be depreciated on a straight-line basis. The machine was leased to Juniper Inc. for 3 years on January 1, 2017, with annual rent payments of $69,560 due at the beginning of each year, starting January 1, 2017. The machine is expected to have a residual value at...

On January 1, 2020, Concord Corporation purchased a new machine for $4130000. The new machine has...

On January 1, 2020, Concord Corporation purchased a new machine for $4130000. The new machine has an estimated useful life of nine years and the salvage value was estimated to be $143000. Depreciation was computed using the sum-of-the-years'-digits method. What amount should be shown in Concord's balance sheet at December 31, 2021, net of accumulated depreciation, for this machine? $2535200 $3987000 $3332600 $2623800

ASD Company leased equipment from ZXC Leasing Company on January 1, 2017. ZXC Leasing Company purchased...

ASD Company leased equipment from ZXC Leasing Company on January 1, 2017. ZXC Leasing Company purchased the equipment from QWE Company at a cost of $85,000 and added the equipment to its inventory of items available for lease. Additional details of the lease are as follows. Quarterly lease payments $15,000 Lease term 2 years Asset's useful life 6 years Asset's fair value at date of inception $113,000 Purchase option lessee is reasonably certain to exercise No Title transfer after lease...

On January 1, 2020, The Fio Corporation purchased a machine for $600,000. The corporation estimated a...

On January 1, 2020, The Fio Corporation purchased a machine for $600,000. The corporation estimated a 5-year useful life (or 300,000 units of useful life) and $60,000 residual/salvage value. 45000 Units were produced in 2020. 6 points: Complete the following table using the indicated depreciation method and year for each row of the table. Method Depreciation expense Accumulated depreciation Book value Straight-line for 2020 Double-declining balance 2020 Double-declining balance 2021 Units-of-production 2020 4 points: What would...

Patton Company purchased $1,500,000 of 10% bonds of Scott Company on January 1, 2018, paying $1,410,375....

Patton Company purchased $1,500,000 of 10% bonds of Scott Company on January 1, 2018, paying $1,410,375. The bonds mature January 1, 2028; interest is payable each July 1 and January 1. The discount of $89,625 provides an effective yield of 11%. Patton Company uses the effective-interest method and plans to hold these bonds to maturity. *USE T ACCOUNTS On July 1, 2018, Patton Company should increase its Debt Investments account for the Scott Company bonds by? For the year ended...

Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Metlock Company....

Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Metlock Company. The following information relates to this agreement. 1. The term of the non-cancelable lease is 3 years with no renewal option. The equipment has an estimated economic life of 5 years. 2. The fair value of the asset at January 1, 2020, is $76,000. 3. The asset will revert to the lessor at the end of the lease term, at which time the asset...

Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Windsor Company....

Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Windsor Company. The following information relates to this agreement. 1. The term of the non-cancelable lease is 3 years with no renewal option. The equipment has an estimated economic life of 5 years. 2. The fair value of the asset at January 1, 2020, is $66,000. 3. The asset will revert to the lessor at the end of the lease term, at which time the asset...

Question