Minnetonka Company leases an asset. Information regarding the lease: • Fair value of the asset: $400,000.
• Useful life of the asset: 6 years with no salvage value.
• Lease term is 5 years.
• Annual lease payments are $60,000
• Implicit interest rate: 11%.
• Minnetonka can purchase the asset at the end of the lease period for $50,000.
What type of lease is this?
A) Operating.
B) Finance.
C) Short term.
D) Long term.

Question

Quizplus · Accepted Answer

The 5-year lease term is for the major part of the asset's 6-year life making this a finance lease.

Minnetonka Company Leases an Asset