Problem:
The Deluxe Corporation has just signed a 120-month lease on an assest with a 15-year life. The minimum lease payments are 2,000 per month (24,000 per year) and are to be discounted back to the present at a 9 percent annual discount rate. The estimated fair value of the property is 200,000. Use Appendix D.
Required:
Question 1: Calculate the lease period as a percentage to the estimated life of the leased property.
Question 2: Calculate the present value of lease payments as a percentage to the fair value of the property.
Question 3: Should the lease be recorded as a capital lease or an operating lease? it's either an operating lease or capital lease.
Note: Provide support for rationale.