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Each of the four independent situations above describes a

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Situation


1 2 3    4
  Lease term (years) 4 4 4    4
  Asset's useful life (years) 6 5 6    6
  Asset's fair value $44,000 $43,000 $41,000 $39,000
  Bargain purchase option? No Yes No No
  Annual lease payments Beg. of yr. End of yr. Beg. of yr. End of yr.
  Lessor's implicit rate (known by lessee) 5% 6% 5% 6%
  Lessee's incremental borrowing rate 5% 5% 5% 5%

Each of the four independent situations above describes a lease requiring annual lease payments of $10,000. For each situation, determine the appropriate lease classification by the lessee.

Reference no: EM13482191

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