question archive On January 2, 2005, Noblick Corporation leased equipment under a three-year lease with payments of $3,000 on each December 31 of the lease term
On January 2, 2005, Noblick Corporation leased equipment under a three-year lease with payments of $3,000 on each December 31 of the lease term
Subject:AccountingPrice: Bought3
On January 2, 2005, Noblick Corporation leased equipment under a three-year lease with payments of $3,000 on each December 31 of the lease term. The present value of the lease payments at a discount rate of 10% is $7,460. If the lease is considered a capital lease, depreciation expense (straight-line) and interest expense are recognized. If the lease is considered an operating lease, then rent expense is recognized. Required:
a. What factors must Noblick consider in determining whether the lease is a capital lease or an operating lease?
b. What will be the total expense recognized on Noblick's income statement over the three years if the lease is considered an operating lease? c. What will be the total expense recognized on Noblick's income statement over the three years if the lease is considered a capital lease? d. Which lease will result in the highest income in each of the three years? Explain.
e. Which lease will result in the highest cash flow in each of the three years? Explain.
