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

Solutions

Expert Solution

Answer C. Finance Lease Finance lease

Workings

ekkarill92 answered 1 year ago

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