58. Assume U.S. GAAP (generally accepted accounting principles) applies unless
otherwise noted.
On 1 January 2008 a company enters into a lease agreement to lease a piece of
machinery as the lessor with the following terms:
Annual lease payment due 31 December $50,000
Lease term 5 years
Estimated useful life of the machine 6 years
Estimated salvage value of the machine $0
Carrying value (cost) of leased asset $160,000
Implied interest rate on lease 8%
The firm is reasonably assured of the collection of the lease payments.
Which of the following best describes the classification of the lease on the
company’s financial statements for 2008?
A. Operating lease.
B. Sales type lease.
C. Direct financing lease.
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