Tammy Corporation leased used equipment to Waller,Inc.The equipment originally had a 10-year life and the lease to Waller 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 Waller's books at the beginning of the lease?

Question

Quizplus · Accepted Answer

Since the lease does not transfer ownership, does not have a bargain purchase option, and is for less than 75% of the asset's life, it is an operating lease. Therefore, Waller, Inc. should not record the leased asset on its books.

Tammy Corporation Leased Used Equipment to Waller,Inc