13 May FROM DIETRICH’S VIEWPOINT, WHAT TYPE OF LEASE IS THIS?
On January 1, 2014, Marlene Corp. enters into an agreement with Dietrich Rentals Inc. to lease a machine from them. Both corporations adhere to ASPE. The following data relate to the agreement: 1.The term of the non-cancellable lease is three years with no renewal option. Payments of $271,622 are due on December 31 of each year. 2.The fair value of the machine on January 1, 2014, is $700,000. The machine has a remaining economic life of 10 years, with no residual value. The machine reverts to the lessor upon the termination of the lease. 3.Marlene depreciates all its machinery on a straight-line basis. 4.Marlene’s incremental borrowing rate is 10%. Marlene does not have knowledge of the 8% implicit rate used by Dietrich. 5.Immediately after signing the lease, Dietrich discovers that Marlene is the defendant in a lawsuit that is sufficiently material to make collectibility of future lease payments doubtful. From Dietrich’s viewpoint, what type of lease is this?Question 9 options:A operating leaseB finance leaseC manufacturer or dealer leaseD other finance leaseSavePrevious PageNext Page
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