Give an explanation using the four classification criteria.

Assignment Help Accounting Basics
Reference no: EM13867310

Garvey Company (the lessee) entered into an equipment lease with Richie Company (the lessor) on January 1 of Year 1. Use the following information to decide whether this lease qualifies as an operating or capital lease for Garvey, and give an explanation using the four classification criteria.

1. The equipment reverts back to the lessor at the end of the lease, and there is no bargain purchase option.
2. The lease term is five years and requires Garvey to make annual payments of $65,949.37 at the end of each year.
3. The discount rate is 10%, which is implicit in the lease. Garvey knows this, and this rate is lower than its incremental borrowing rate.
4. The fair value of the equipment at the lease inception is $250,000. The present value of an ordinary annuity of five payments of $65,949.37 each at 10% is $250,000.
5. The equipment has an estimated economic life of seven years and has zero residual value at the end of this time. Straight-line depreciation is used for similar assets. 

Reference no: EM13867310

Questions Cloud

Cranberry corp. has two divisions of equal size : Cranberry Corp. has two divisions of equal size: a computer manufacturing division and a data processing division. Its CFO believes that stand-alone data processor companies typically have a WACC of 8%, while stand-alone computer manufacturers typica..
Develop delivery truck schedule presentation : Develop Delivery Truck Schedule Presentation. The weekly, Monday - Thursday, Branch Inventory Replenishment Delivery Truck Schedule needs to be developed for presentation to the V.P.
Identify the conclusion these scenario : "The Universe is Better with Some Evil in It Than It Could Be if There Were No Evil" in paragraph 8 of the section on pp. 293-4. Try to identify first his conclusion there
Cascade water company : Cascade Water Company (CWC) currently has 30,000,000 shares of common stock outstanding that trade at a price of $42 per share. CWC also has 500,000 bonds outstanding that currently trade at $923.38 each. CWC has no preferred stock outstanding and ha..
Give an explanation using the four classification criteria. : Garvey Company (the lessee) entered into an equipment lease with Richie Company (the lessor) on January 1 of Year 1. Use the following information to decide whether this lease qualifies as an operating or capital lease for Garvey, and give an explana..
Why do proprietary type funds use full accrual accounting : Why do proprietary type funds use full accrual accounting?
Determine the hardness of water : The hardness of 10,000 litres of hard water sample was completely removed by passing it through a zeolite softner. The zeolite softner required 5000 litres of NaCl solution containing 1170 mg of NaCl/litre. Determine the hardness of water?
Describe the types of activities accounted : List the three categories of funds used in governmental accounting, and describe the types of activities accounted for in each category.
What do you recommend based on the expected monetary value : What do you recommend, based on the Expected Monetary value of each option? Why is that?

Reviews

Write a Review

Accounting Basics Questions & Answers

  Sarah homebody would like to buy a house she believes she

sarah homebody would like to buy a house. she believes she will need a downpayment of 60000. if she intends to buy a

  Sophia tang aged 78 has been in business as a sole trader

sophia tang aged 78 has been in business as a sole trader since 1 april 1986. on 31 march 2007 she transferred the

  What is accrual accounting

What is accrual accounting? Why do generally accepted accounting principles require accrual accounting? What is the difference between accrual and cash accounting?

  What is the motivation behind the tax departments

as of december 30 2009 robin corporation a calendar year taxpayer has gross income from operations of 497000 expenses

  In october 2010 rojo incs production was 53600 equivalent

in october 2010 rojo inc.s production was 53600 equivalent units for direct material 48800 equivalent units for direct

  The table below shows your stock positions at the beginning

the table below shows your stock positions at the beginning of the year the dividends that each stock paid during the

  Grand river corporation reported taxable income of 500000

grand river corporation reported taxable income of 500000 in 2010 and paid federal income taxes of 170000. not included

  The inefficiency of international companies having to

the following comments were made at an anual conference of the financialexecutves institute feithere is an irreversible

  Compare and contrast sole proprietorships and partnerships

Compare and contrast sole proprietorships and partnerships - organization, operation and taxation. Be sure to organize your answer so that you address each of the aspects of this question - organization, operation and taxation - completely for eac..

  How much would keep after taxes

Emmy would like to organize PRK as a C corporation with herself as sole shareholder. Emmy expects PRK to generate $15,000 annual income before paying Emmy's salary. Individual ordinary rates are 25 percent, corporate rates are 15 percent, and individ..

  Design a performance report for the chicago omni hotel

the chicago omni hotel is a 750-room luxury hotel offering guests the finest facilities in downtown chicago. the hotel

  Suppose that a 1-day 975 var is estimated as 13 million

suppose that a 1-day 97.5 var is estimated as 13 million from 2.000 observations. the observations on the 1-day changes

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd