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)