Only the forklift fleet meets a criterion, so only it becomes a finance lease in AC301's Unit 6 lease classification analysis; the warehouse stays operating, and both are recorded. Searches like "ac 301 unit 6 assignment example", "ac301 unit 6 sample" and "ac301 unit 6 example" land here.
What a finished AC301 Unit 6 lease classification analysis looks like
A criteria grid with five rows and two columns, one per lease, each cell holding a verdict and its figure, followed by a measurement block for each lease. The forklift lease runs five years on equipment with a six-year life, so the term covers 83 percent of economic life and meets the major-part criterion. Its payments of 30,000 a year in advance, discounted at the 6 percent implicit rate, have a present value of 133,953, only 89.3 percent of the 150,000 fair value, so the substantially-all test narrowly fails; one met criterion is enough. The warehouse lease, ten years on a building with a forty-year life and 96,000 a year in advance, meets nothing. Its present value at the 7 percent incremental borrowing rate is 721,462, about 18 percent of the building's value.
How a AC301 Unit 6 example is structured
The grid comes first because classification decides every later figure, and the standard asks whether any one criterion is met, not whether most are. Each row names its criterion in the standard's terms: transfer of ownership, a purchase option reasonably certain to be exercised, a term covering a major part of economic life, a present value amounting to substantially all of fair value, and an asset so specialized it has no alternative use to the lessor. The 75 and 90 percent thresholds appear as guidelines, not law. The forklift block follows with commencement measurement and the first year: a liability of 103,953 after the opening payment, interest of 6,237 at year end, and right-of-use amortization of 26,791. The warehouse block shows the single straight-line lease cost of 96,000 that operating classification produces.
Five criteria, two leases
Ownership transfer, purchase option, major part of life, substantially all of fair value, specialized asset. Each cell carries its answer and the number behind it.
The forklifts, by one criterion
A five-year term on a six-year asset covers 83 percent of its life. That alone makes the fleet a finance lease, whatever the present value test shows.
A present value just under the line
Payments of 30,000 in advance at 6 percent are worth 133,953, or 89.3 percent of fair value. The analysis reports the narrow miss rather than rounding it into a pass.
The warehouse meets nothing
Ten years of a forty-year building, no option, no transfer, and a present value of 721,462 against a 4,000,000 value. Operating classification follows.
Two expense patterns
Interest of 6,237 plus amortization of 26,791 for the forklifts; a level lease cost of 96,000 for the warehouse. Both leases carry an asset and a liability.
Where marks go in AC301 Unit 6
Classifying without the grid, asserting that the forklifts are a finance lease because the payments seem large, loses the reasoning marks even with the right answer. Treating the 90 percent guideline as decisive and calling the fleet operating because 89.3 falls short is the most instructive error on this unit, since a single met criterion settles the classification. Leaving the warehouse lease off the balance sheet applies the rule ASC 842 replaced and costs heavily. Discounting payments made in advance as an ordinary annuity understates both liabilities. For the finance lease, a single straight-line charge borrows the operating pattern; for the operating lease, separate interest and amortization borrow the finance one. A rate chosen without saying why, implicit for one lease and incremental for the other, draws a minor deduction.
Get a AC301 Unit 6 example written to your instructions
Classification can turn on a single fact, such as a renewal option, so the whole Unit 6 case helps: lease terms, payment timing, asset life, fair value, options and rates, with the rubric. The grid, both measurements and the first-year entries follow in 24-48h, and first custom samples cost nothing.
AC301 Unit 6 questions, answered
Why does the analysis use two different discount rates?
Because a lessee uses the rate implicit in the lease when it can readily determine it and its incremental borrowing rate when it cannot. The forklift lessor disclosed its implicit rate of 6 percent; the warehouse owner did not, so the company's own borrowing rate of 7 percent applies. AC301 problems usually state which rate is available, and the sample names its source for each lease.
Are the 75 and 90 percent thresholds rules or guidelines?
Guidelines. ASC 842 describes them as one reasonable approach to judging major part and substantially all, carried over from the older standard's bright lines. Most AC301 problems apply them as stated, and the sample does too, but it words its conclusions as judgments supported by the percentages rather than as mechanical results, which reads better to a grader who knows the standard.
Does the analysis cover the lessor's side as well?
Only when the problem asks. Lessors classify leases as sales-type, direct financing or operating using similar criteria, and some AC301 units assign both sides of one agreement. When they do, the sample adds a second grid and the lessor's entries, noting where the lessor's classification diverges from the lessee's, as it can when a third party guarantees the residual value.