Business, 27.04.2021 15:30 adejumoayobami1

Corinth Co. leased non-specialized equipment to Athens Corporation for an eight-year period, at which time possession of the equipment will revert back to Corinth. The equipment cost Corinth $16 million and has an expected useful life of 12 years. Its normal sales price is $22.4 million. The present value of the lease payments for both the lessor and lessee is $20.6 million. The first payment was made at the beginning of the lease. How should Corinth classify this lease? My teacher gives the below
The present value of the lease payments is greater than "substantially all" of the fair value of the asset ($20.6 / $22.4 = 92%). The criteria indicate it is a sales-type lease to Corinth. Furthermore, it’s a sales-type lease with a selling profit because the present value of the lease payments ($20.6 million) exceeds the lessor’s cost ($16 million).

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Corinth Co. leased non-specialized equipment to Athens Corporation for an eight-year period, at whic...

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