As the recently hired junior accountant for Norman, Inc, youhave just completed your initial review of the financialstatements. During this review, you discover a used vehiclerecently recorded as an operating lease. The lease agreement wasentered into a year ago. You decide to review the lease agreementto ensure that the lease should be afforded operating leasetreatment, and you discover the following: Non-cancelable term of 4years. Rental of $3,240 per year (at the end of each year). (Thepresent value at 8% per year is $10,731). Estimated residual valueof $1,100 is guaranteed. Estimated economic life of the automobileis 5 years. Norman's incremental borrowing rate is 8% per year.Initial Post In your discussion, evaluate the criteria forclassification of the lease, and describe the nature of thelease.
As the recently hired junior accountant for Norman, Inc, youhave just completed your initial review of the financialstatements. During this review, you discover a used vehiclerecently recorded as an operating lease. The lease agreement wasentered into a year ago. You decide to review the lease agreementto ensure that the lease should be afforded operating leasetreatment, and you discover the following: Non-cancelable term of 4years. Rental of $3,240 per year (at the end of each year). (Thepresent value at 8% per year is $10,731). Estimated residual valueof $1,100 is guaranteed. Estimated economic life of the automobileis 5 years. Norman's incremental borrowing rate is 8% per year.Initial Post In your discussion, evaluate the criteria forclassification of the lease, and describe the nature of thelease.
