Fact Pattern:
Neary Company has entered into a contract to lease computers from Baldwin Company starting on January 1, Year 1. Relevant information pertaining to the lease is provided below.
Lease term 4 Years
Useful life of computers 5 Years
Present value of future lease payments 100,000
Fair value of leased asset on date of lease 105,000
Baldwin’s implicit rate 10%
At the end of the lease term, ownership of the asset transfers from Baldwin to Neary. Neary has properly n line depreciation o-classified this lease as a capital lease on its financial statements and uses straightcomparable assets.
At January 1, Year 1, the lease would be reported on Neary’s books as a(n)