Marnie Company enters into a two-year lease. The terms of the lease do not transfer ownership and do not contain a bargain purchase option. The lease is for 60% of the asset's economic life and represents 80% of its fair value. The asset is not a specialized asset and does have alternative uses. How should Marnie classify and record the lease

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Business

Clyde

26 August, 06:52

Marnie Company enters into a two-year lease. The terms of the lease do not transfer ownership and do not contain a bargain purchase option. The lease is for 60% of the asset's economic life and represents 80% of its fair value. The asset is not a specialized asset and does have alternative uses. How should Marnie classify and record the lease

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Eduardo Bauer · Answer 1

The lease should be classified as an operating lease, and a lease liability should be recorded at the inception of the lease.

Explanation:

Operating lease is a contract that allows for the use of an asset but does not convey ownership rights of the said asset.

Lease liability is defined as a financial obligation to make the payments arising from a lease and it is calculated on a discounted basis.