Milwaukee West is leasing 20 General Motors F40PH electro-motive diesel train engines from Bellweather Brokerage. The lease is considered a finance lease. At the end of the lease, ownership reverts back to Bellweather. The useful life of the engines is 15 years while the life of the lease is 13 years. Milwaukee west uses the double-declining balance method of depreciation. The engines should be fully depreciated at the end of 13 years.

Question

Quizplus · Accepted Answer

The lease is considered a finance lease, which means that Milwaukee West has substantially all the risks and rewards of ownership. Therefore, Milwaukee West should depreciate the engines over the useful life of the asset, which is 15 years.

Milwaukee West Is Leasing 20 General Motors F40PH Electro-Motive Diesel