Potter Corporation leased used equipment to Weasley, Inc. The equipment originally had a 10-year life and the lease to Weasley is for the last two of the ten-year life of the asset. The lease calls for four semiannual lease payments of $2,000 to be made at the end of each year in the life of the lease. The lease agreement contains no transfer of title or bargain purchase option provisions.
What is the amount of the leased asset that should be recorded on Weasley's books at the beginning of the lease?

Question

Quizplus · Accepted Answer

Since the lease is for the last two years of the asset's life and there is no transfer of title or bargain purchase option, it is an operating lease. Therefore, Weasley, Inc. should not record the leased asset on its books.

Potter Corporation Leased Used Equipment to Weasley, Inc