How should the lease transaction for hester company

Reference no: EM131014684

Presented below are three different lease transactions that occurred for Ruggiero Inc. in 2014. Assume that all lease contracts start on January 1, 2014. In no case does Ruggiero receive title to the properties leased during or at the end of the lease term.

Lessor
	Judson Delivery	Hester Co.	Gunselman Auto
Type of property	Computer	Delivery equipment	Automobile
Yearly rental	$ 5,000	$ 4,200	$ 3,700
Lease term	6 years	4 years	2 years
Estimated economic life	7 years	7 years	5 years
Fair value of lease asset	$27,500	$19,000	$11,000
Present value of the lease rental payments	$26,000	$13,000	6,400 $
Bargain purchase option	None	None	None

Instructions:

a) Which of the leases are operating leases and which are capital leases? Explain.

b) How should the lease transaction for Hester Co. be recorded in 2014?

c) How should the lease transaction for Judson Delivery be recorded on January 1, 2014?

Reference no: EM131014684

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