ACCT-202 Study Guide - Final Guide: Kazoo
Document Summary
Solution to sample lease problems: on january 1, 1997, buckeye company leased equipment from irish, inc. for 8 years. Buckeye is required to make 8 payments of ,000 at the beginning of each year starting on. There is a bargain purchase option (treated as a guaranteed residual) of ,000. The equipment"s economic life is 10 years and its residual value after 10 years is sh. Irish is a leasing company whose business is simply to finance leases. Irish does not manufacture or deal in this type of equipment. Buckeye has a very high credit rating (#1 in the industry as a matter of fact). Therefore, irish fully expects to collect the lease payments from buckeye. Financing lease because: (a) the lease term is 80% of asset"s life which is greater than 75%; (b) reasonably certain of collectability of payments; and (c) reasonably sure of future cash outflows relating to lease.