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bgf12032
bgf12032
13.05.2021 • 
Business

Marigold Company, a risky start-up, is evaluating a lease arrangement being offered by TSP Company for use of a standard computer system. The lease is non-cancelable, and in no case does Marigold receive title to the computers during or at the end of the lease term. The lease starts on January 1, 2020, with the first rental payment due on January 1, 2020. Additional information related to the lease and the underlying leased asset is as follows. Yearly rental $3,057.25
Lease term 3 years
Estimated economic life 5 years
Purchase option $3,000 at end of 3 years, which approximates fair value
Renewal option 1 year at $1,500; no penalty for nonrenewal; standard renewal clause
Fair value at commencement $10,000
Cost of asset to lessor $8,000
Residual value:
Guaranteed –0–
Unguaranteed $3,000
Lessor's implicit rate (known by the lessee) 12%
Estimated fair value at end of lease $3,000

Required:
a. Analyze the lease classification tests for this lease for Salaur. Prepare the journal entries for Salaur for 2020.
b. Repeat the requirements in part a, assuming Salaur has the option to purchase the system at the end of the lease for $100.

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