Technoid Inc. sells computer systems. Technoid leases computers to Lone Star Company on January 1, 2021. The manufacturing cost of the computers was $12 million. This noncancelable lease had the following terms: Lease payments: $2,466,754 semiannually; first payment at January 1, 2021; remaining payments at June 30 and December 31 each year through June 30, 2025. Lease term: five years (10 semiannual payments). No residual value; no purchase option. Economic life of equipment: five years. Implicit interest rate and lessee's incremental borrowing rate: 5% semiannually. Fair value of the computers at January 1, 2021: $20 million. Technoid would account for this as:

A sales type lease with selling profit.

Explanation:

Technoid Inc. would account for this as a sales type lease with selling profit. In a sales type lease, the fair value of the leased asset at the start of a lease varies from its carrying amount and there is a transfer of ownership by law to the lessee at the end of the lease period. Cost is $12 million and Fair value is $20 million and Present value of minimum lease payment is also $20 million.

For Lone Star Company, it would account for this as a finance lease.

turnover

the amount of money taken by a business in a particular period.

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