identify the leases above as operating or capital leases explain 581501

Presented below are three different lease transactions in which Kristi Enterprises engaged in 2012. Assume that all lease transactions start on January 1, 2012. In no case does Kristi receive title to the properties leased during or at the end of the lease term.

Lessor

Denham Springs Co.

Hofmeister Co.

Janca Inc.

Type of property

Bulldozer

Truck

Furniture

Bargain purchase option

None

None

None

Lease term

4 years

6 years

3 years

Estimated economic life

8 years

7 years

5 years

Yearly rental

$13,000

$20,000

$ 3,000

Fair value of leased asset

$80,000

$96,000

$20,500

Present value of the lease

rental payments

$48,000

$82,000

$ 9,000

Instructions

(a) Identify the leases above as operating or capital leases. Explain.

(b) How should the lease transaction for Hofmeister Co. be recorded on January 1, 2012?

(c) How should the lease transaction for Janca Inc. be recorded in 2012?