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Question
1. Five payments of $26,379.74 (a 9% implicit rate, known to Morey) due at the end each year.2. The payments were calculated based on the fair value (which is also the book value for Equity) of the tractor.
3. The lease is nonrenewable and the tractor reverts to Equity at the end of the lease term.
4. The tractor has a six-year economic life.
5. Morey has an excellent credit rating.
6. Equity offers no warranty on the tractor other than the manufacturer's two-year warranty that is handled directly with the manufacturer.
For Morey, this lease is treated as a/an
A. operating lease.
B. capital lease.
C. direct financing capital lease.
D. sales-type capital lease.
Answer
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