The following facts pertain to a noncancelable lease agreement between Saturn Le

Question

The following facts pertain to a noncancelable lease agreement between Saturn Leasing Corporation and New Land Company, a lessee October 1, 2017 Inception date Annual lease payment due at the beginning of each year, beginning with October 1, 2017 Bargain purchase option price at end of lease term Lease term Economic life of leased equipment Lessor's cost Fair value of asset at October 1, 2017 Lessor's implicit rate (not known by lessee) Lessee's incremental borrowing rate $31,415.63 $5,000.00 6 years 12 years $120,000.00 $160,000.00 8% 6% The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. The lessee assumes responsibility for all executory costs REQUIRED (a) Discuss the nature of this lease to New Land Company. (b) Discuss the nature of this lease to Saturn Leasing Corporation.

Explanation / Answer

1. The lease is Finance Lease because it has substantial coverage of uselife and the lease value is nearly the amount of the cost of the leased asset

2. The Lease given by saturn is not a lease because it is revenue from operation as it main business is to let properties for lease.

3. Lease Liability to be recovered by New land company is

Lease Liability is PV value of Lease Rental or Fair value which ever is lower

188493.8 (31415.63*6)

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