Classifying Leases Tropical Products Inc. is in the process of negotiating a lease of equipment with a fair value of $50.000, and it must determine the proper lease classification. The following

table describes four scenarios under negation Ownershtare Purchase opon Economice of equipment in years No atamuthe use of equipment at leme end No Option Two Marked out of 2000 Option 1. Owner 2 Purchase po Lease term length S Noatema No Option Four La Classification Criterie Criterian Met Lease type for Option One France lease Annual lease payment Guararced residan volu implickace of e incremental borrowing rate of Patty Required For each of the four options, determine whether the lessee would densify the lease as operating or finance 1. Ownership an 2. Purchase option La Can Cree Criterian Met Ownership transfer Packar Lease term length Present velue of le No alemave use Lease type for Option Two: Operating lease 3. Lee er engh 4. Part of 5o aterra No Unknown to lessee Unknown to le payments No $11,000 No Lease Cascation Criteria Citern Met Yes Lease type for Option Three: France lease No No 39 Beginning of panid Depring of period sepring of petod and of parad Na Les Cato Citra Crianos e Ownership wereler Purace Prement volue of lease pay No Sa Lease type for Option Four: Finance se 5 $11.000 4 your lase PV of payments of Opties 1 PV ofime payments of 3 year kase term PVallease payments of $11,000 $11,000 $15.000 4 yew leme te PV of payments of 43 55 84% nown so Oprine4 No $10,000 purchase opon, considered a dhounted price 05 O is 3 years 2F 9H Analysis 0% of the mes far value of $ Analysis of of the 0% of the sets value of 80% of the assesse 0% of the avers a value of 40% of the assets und d of the assef's le value of 5 years 50,000 5 years $0,000 50,000 50.000