accounting exam 2

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Information for Kent Corporation for the year 2024: Reconciliation of pretax accounting income and taxable income: Pretax accounting income $ 180,000 Permanent differences (15,000) 165,000 Temporary difference- depreciation (12,000) Taxable income $ 153,000 Cumulative future taxable amounts all from depreciation temporary differences: As of December 31, 2023$ 13,000 As of December 31, 2024$ 25,000 The enacted tax rate was 25% for 2023 and thereafter. What should be the balance in Kent's deferred tax liability account as of December 31, 2024?

$6,250

A deferred tax asset represents a:

Future income tax benefit.

Financial statement disclosure of the components of income tax expense:

Usually is included in the disclosure notes.

For classification purposes, a valuation allowance is:

contra to the deferred tax asset and classified as noncurrent.

From the perspective of the lessor, two possible lease classifications are:

Operating or sales-type.

Assume that Sharp operates in an industry for which NOL carryback is allowed. In its first three years of operations Sharp reported the following operating income (loss) amounts: 2022 $ 1,350,000 2023 (3,150,000) 2024 5,400,000 There were no deferred income taxes in any year. In 2023, Sharp elected to carry back its operating loss. The enacted income tax rate was 25% in 2022 and 30% thereafter. In its 2024 balance sheet, what amount should Sharp report as current income tax payable?

$1,080,000

Durney Company recorded a right-of-use asset of $800,000 in a ten-year finance lease. The interest rate charged by the lessor was 10%. The balance in the right-of-use asset after two years will be:

$640,000.

On January 1, Ramirez Supply leased a car for a four-year period, at which time possession of the car will revert back to the lessor. Annual lease payments are $20,000 due on December 31 of each year, calculated by the lessor using a 5% discount rate. Negotiations led to Ramirez guaranteeing the lessor a $72,000 residual value at the end of the lease term although Ramirez estimates that the residual value after four years will be $70,000. What is the amount to be added to the right-of-use asset and lease payable under the residual value guarantee? Note: Round your answer to the nearest whole dollar amount. The present value of $1: n = 4, i = 5% is 0.82270. The present value of an ordinary annuity of $1: n = 4, i = 5% is 3.54595. The present value of an annuity due of $1: n = 4, i = 5% is 3.72325.

$1,645

Technoid Incorporated sells computer systems. Technoid leases computers to Lone Star Company on January 1, 2024. The manufacturing cost of the computers was $12 million. This noncancelable lease had the following terms: Lease payments: $2,466,754 semiannually; first payment on January 1, 2024; remaining payments on June 30 and December 31 each year through June 30, 2028. Lease term: five years (10 semiannual payments). No residual value; no purchase option. Economic life of equipment: five years. Implicit interest rate and lessee's incremental borrowing rate: 5% semiannually. Fair value of the computers on January 1, 2024: $20 million. What is the interest revenue that Technoid would report for this lease in its income statement for the year ended December 31, 2024?

$1,673,820

On January 1, 2024, Packard Corporation leased equipment to Hewlitt Company. The lease term is eight years. The first payment of $450,000 was made on January 1, 2024. Remaining payments are made on December 31 each year, beginning with December 31, 2024. The equipment cost Packard Corporation $2,400,000. The present value of the lease payments is $2,640,788. The lease is appropriately classified as a sales-type lease. Assuming the interest rate for this lease is 10%, what will be the balance reported as a liability by Hewlitt in its balance sheet on December 31, 2025?

$1,705,854

Refer to the following lease amortization schedule. The five payments are made annually starting with the beginning of the lease. A $2,000 purchase option is reasonably certain to be exercised at the end of the five-year lease. The asset has an expected economic life of eight years. What is the outstanding balance after payment 5?

$1,818

On October 1, 2024, Sonoma Company leased equipment from Napa Incorporated in lease payable in five equal annual payments of $500,000, beginning October 1, 2025. Similar transactions have carried an 11% interest rate. The right-of-use asset would be recorded at:

$1,847,950.

Woody Corporation had taxable income of $8,000 in the current year. The amount of depreciation reported in the tax return was $3,000, while the amount of depreciation reported in the income statement was $1,000. Assuming no other differences between tax and accounting income, Woody's pretax accounting income was:

$10,000.

Titanic Corporation leased executive limos under terms of a $20,000 first payment upon signing the lease and four equal annual payments of $30,000 on the anniversary date of the lease. The interest rate implicit in the lease is 11%. The first year's interest expense would be:

$10,238.

Isaac Incorporated began operations in January 2024. For some property sales, Isaac recognizes income in the period of sale for financial reporting purposes. However, for income tax purposes, Isaac recognizes income when it collects cash from the buyer's installment payments. In 2024, Isaac had $600 million in sales of this type. Scheduled collections for these sales are as follows: 2024 $ 60million 2025 120million 2026 120million 2027 150million 2028 150million $ 600million Assume that Isaac has a 25% income tax rate and that there were no other differences in income for financial statement and tax purposes. Ignoring operating expenses and additional sales in 2025, what deferred tax liability would Isaac report in its year-end 2025 balance sheet?

$105 million

On January 1, 2024, PokemonGo Company leased equipment to Waldo Corporation under a lease agreement that qualifies as an operating lease to Waldo. The present value of the end-of-year lease payments of $138,585 discounted at 5% is $600,000. The expected economic life of the asset is seven years. The lease term is five years. What would Waldo record as amortization in 2024?

$108,585; 5% × $600,000 = $30,000. $138,585 − $30,000 = $108,585.

Jasbir Company leased equipment to Dhaliwal Corporation under a lease agreement that qualifies as a finance lease. The cost of the asset is $120,000. The lease contains a bargain purchase option that is effective at the end of the fifth year. The expected economic life of the asset is 10 years. The lease term is five years. The asset is expected to have a residual value of $2,000 at the end of 10 years. Using the straight-line method, what would Dhaliwal record as annual amortization?

$11,800; $ 118,000 ÷ 10 = $ 11,800

Assume that Peridot operates in an industry for which NOL carryback is allowed. In its first four years of operations Peridot reported the following operating income (loss) amounts: 2021 $ 150,000 2022 100,000 2023 (425,000) 2024 450,000 There were no other items affecting deferred income taxes in any year. In 2023, Peridot elected to carry back its operating loss. The enacted income tax rate was 25%. In its 2024 income statement, what amount should Peridot report as income tax expense?

$112,500

Information for Hobson Corporation for the current year ($ in millions): The applicable enacted tax rate for all periods is 25%. What should Hobson report as income from continuing operations?

$115.0 million

XYZ Company leased equipment to West Corporation under a lease agreement that qualifies as a finance lease to West, but not as a result of a bargain purchase option or a title transfer. The present value of the lease payments is $600,000. The expected economic life of the asset is seven years. The lease term is five years. Using the straight-line method, what would West record as annual amortization?

$120,000

Isaac Incorporated began operations in January 2024. For some property sales, Isaac recognizes income in the period of sale for financial reporting purposes. However, for income tax purposes, Isaac recognizes income when it collects cash from the buyer's installment payments. In 2024, Isaac had $600 million in sales of this type. Scheduled collections for these sales are as follows: 2024$ 60million2025120million2026120million2027150million2028150million $ 600million Assume that Isaac has a 25% income tax rate and that there were no other differences in income for financial statement and tax purposes. Suppose that, in 2025, legislation revised the income tax rates so that Isaac would be taxed in 2026 and beyond at 30%, rather than 25%. Assume that there were no other differences in income for financial statement and tax purposes. Ignoring operating expenses and additional sales in 2025, what deferred tax liability would Isaac report in its year-end 2025 balance sheet?

$126 million

Isaac Incorporated began operations in January 2024. For some property sales, Isaac recognizes income in the period of sale for financial reporting purposes. However, for income tax purposes, Isaac recognizes income when it collects cash from the buyer's installment payments. In 2024, Isaac had $600 million in sales of this type. Scheduled collections for these sales are as follows: 2024 $ 60million 2025 120million 2026 120million 2027 150million 2028 150million $ 600million Assume that Isaac has a 25% income tax rate and that there were no other differences in income for financial statement and tax purposes. Ignoring operating expenses, what deferred tax liability would Isaac report in its year-end 2024 balance sheet?

$135 million

The following information relates to Franklin Freightways for its first year of operations (data in millions of dollars): Pretax accounting income:$ 195 Pretax accounting income included: Overweight fines (not deductible for tax purposes) 5 Depreciation expense 70 Depreciation in the tax return 110 The applicable tax rate is 25%. There are no other temporary or permanent differences. Franklin's net income ($ in millions) is:

$145.

Pretax accounting income for the year ended December 31, 2024, was $50 million for Truffles Company. Truffles' taxable income was $60 million. This was a result of differences between straight-line depreciation for financial reporting purposes and accelerated depreciation for tax purposes. The enacted tax rate is 25% for 2024 and 30% thereafter. What amount should Truffles report as the current portion of income tax expense for 2024?

$15 million

:Technoid Incorporated sells computer systems. Technoid leases computers to Lone Star Company on January 1, 2024. The manufacturing cost of the computers was $12 million. This noncancelable lease had the following terms: Lease payments: $2,466,754 semiannually; first payment on January 1, 2024; remaining payments on June 30 and December 31 each year through June 30, 2028. Lease term: five years (10 semiannual payments). No residual value; no purchase option. Economic life of equipment: five years. Implicit interest rate and lessee's incremental borrowing rate: 5% semiannually. Fair value of the computers on January 1, 2024: $20 million. What is the outstanding balance of the lease liability in Lone Star's balance sheet on June 30, 2024?

$15,943,154

Technoid Incorporated sells computer systems. Technoid leases computers to Lone Star Company on January 1, 2024. The manufacturing cost of the computers was $12 million. This noncancelable lease had the following terms: Lease payments: $2,466,754 semiannually; first payment on January 1, 2024; remaining payments on June 30 and December 31 each year through June 30, 2028. Lease term: five years (10 semiannual payments). No residual value; no purchase option. Economic life of equipment: five years. Implicit interest rate and lessee's incremental borrowing rate: 5% semiannually. Fair value of the computers on January 1, 2024: $20 million. What is the outstanding balance of the lease liability in Lone Star's balance sheet on June 30, 2024?

$15,943,154

Jagadison Company leases computer equipment to customers under sales-type leases. The equipment has no residual value at the end of the lease and the leases do not contain purchase options. Jagadison desires a return of 8% interest on a five-year lease of equipment with a fair value of $970,425. The present value of an annuity due of $1 at 8% for five years is 4.313. What is the total amount of interest revenue that Jagadison will earn over the life of the lease?

$154,575

The following information relates to Franklin Freightways for its first year of operations (data in millions of dollars): Pretax accounting income:$ 195Pretax accounting income included: Overweight fines (not deductible for tax purposes)5Depreciation expense70Depreciation in the tax return110 The applicable tax rate is 25%. There are no other temporary or permanent differences. Franklin's taxable income ($ in millions) is:

$160.

Alamo Incorporated had $300 million in taxable income for the current year. Alamo also had a decrease in deferred tax assets of $30 million and an increase in deferred tax liabilities of $60 million. The company is subject to a tax rate of 25%. The total income tax expense for the year was:

$165

Assume that The Bell Company operates in an industry for which NOL carryback is allowed. The Bell Company had the following operating results: Year Income Tax rate Income tax 202 140,000 25% 10,000 2022 20,000 25% 5,000 2023 50,000 30% 15,000 2024 (60,000) 30% 0 What is the income tax refund receivable?

$17,000

On January 1, 2024, Zhang Corporation entered into a four-year operating lease. The payments were as follows: $20,000 for 2024, $18,000 for 2025, $16,000 for 2026, and $14,000 for 2027. What is the correct amount of total lease expense for 2025?

$17,000; $ 68,000 ÷ 4=$ 17,000

Karla Salons leased equipment from Smith Company on July 1, 2024, in a finance lease. The present value of the lease payments discounted at 10% was $81,100. Ten annual lease payments of $12,000 are due each year beginning July 1, 2024. Smith Company had constructed the equipment recently for $66,000, and its retail fair value was $81,100. What amount did Smith Company record in its income statement for the reporting year ending December 31, 2024, in connection with the lease? (ignore taxes.)

$18,555

in its first year of operations, Woodmount Corporation reported pretax accounting income of $500 million for the current year. Depreciation reported in the tax return in excess of depreciation in the income statement was $60 million. The excess tax will reverse itself evenly over the next three years. The current year's tax rate of 25% will be increased under the current law to 30% next year and 35% for all subsequent years. At the end of the current year, the deferred tax liability related to the excess depreciation will be:

$20 million. Next year: $20 × 30%= $6 Subsequent years: $40 × 35%=14 Deferred tax liability$ 20

On December 31, 2024, Perry Corporation leased equipment to Admiral Company for a five-year period. The annual lease payment, excluding nonlease components, is $40,000. The interest rate for this lease is 10%. The payments are due on December 31 of each year. The first payment was made on December 31, 2024. The normal cash price for this type of equipment is $125,000 while the cost to Perry was $105,000. For the year ended December 31, 2024, by what amount will Perry's earnings increase due to this lease (ignore taxes)?

$20,000

BBB Leasing purchased a machine for $250,000 and leased it to Jack Tupp Auto Repair on January 1, 2024.

$224,381

On January 1, 2024, Perez Company recorded a right-of-use asset of $270,360 in an operating lease. The lease calls for ten annual payments of $40,000 at the beginning of each year. The interest rate charged by the lessor was 10%. The balance in the right-of-use asset on December 31, 2024, will be:

$253,396.

Information for Hobson Corporation for the current year ($ in millions): The applicable enacted tax rate for all periods is 25%. What is Hobson's income tax payable for the current year?

$28.25 million

On December 31, 2023, Reagan Incorporated signed a lease with Silver Leasing Company for some equipment having a seven-year useful life. The lease payments are made by Reagan annually, beginning at signing date. Title does not transfer to the lessee, so the equipment will be returned to the lessor on December 31, 2029. There is no purchase option, and Reagan guarantees a residual value to the lessor on termination of the lease. Reagan's lease amortization schedule appears below: What is the balance of the lease liability on Reagan's balance sheet at December 31, 2025 (after the third lease payment is made)?

$280,531

On January 1, 2024, Princess Corporation leased equipment to King Company. The lease term is eight years. The first payment of $675,000 was made on January 1, 2024. The equipment cost Princess Corporation $3,600,000. The present value of the lease payments is $3,961,183. The lease is appropriately classified as a sales-type lease. Assuming the interest rate for this lease is 10%, how much interest revenue will Princess record in 2025 on this lease?

$293,980

Karla Salons leased equipment from Smith Company on July 1, 2024, in a finance lease. The present value of the lease payments discounted at 10% was $81,100. Ten annual lease payments of $12,000 are due each year beginning July 1, 2024. Smith Company had constructed the equipment recently for $66,000, and its retail fair value was $81,100. What amount of interest revenue from the lease should Smith Company report in its income statement for the year ended December 31, 2024?

$3,455

Before considering a net operating loss carryforward of $80 million, Fama Corporation reported $200 million of pretax accounting and taxable income in the current year. The income tax rate for all previous years was 30%. On January 1 of the current year, a new tax law was enacted, reducing the rate to 25% effective immediately. Fama's income tax payable for the current year would be:

$30 million.

Giada Foods reported $940 million in income before income taxes for 2024, its first year of operations. Tax depreciation exceeded depreciation for financial reporting purposes by $100 million. The company also had non-tax-deductible expenses of $80 million relating to permanent differences. The income tax rate for 2024 was 25%, but the enacted rate for years after 2024 is 30%. The balance in the deferred tax liability in the December 31, 2024, balance sheet is:

$30 million.

In a 10-year finance lease, Warren Company recorded a right-of-use asset of $400,000. If the interest rate charged by the lessor was 8%, what would be the balance in the right-of-use asset after two years?

$320,000.

On January 1, 2024, Rastall Company signed a long-term finance lease for an office building. The terms of the lease required Rastall to pay $30,000 annually, beginning December 31, 2024, and continuing each year for 30 years. On January 1, 2024, the present value of the lease payments is $337,734 discounted at the 8% interest rate implicit in the lease. What is the amount of the lease payable that would be reported in Rastall's balance sheet on December 31, 2024?

$334,753

Refer to the following lease amortization schedule. The 10 payments are made annually starting with the beginning of the lease. Title does not transfer to the lessee and there is no purchase option or guaranteed residual value. The asset has an expected economic life of 12 years. The lease is noncancelable. What is the total effective interest paid over the term of the lease?

$36,718

Assume that Theodore Enterprises operates in an industry for which NOL carryback is allowed. Theodore Enterprises had the following pretax income (loss) over its first three years of operations: 2022 $ 500,000 2023 (900,000) 2024 1,500,000 For each year there were no deferred income taxes and the tax rate was 25%. In its 2023 tax return, Theodore elected a net operating loss carryback. No valuation account was deemed necessary for the deferred tax asset as of December 31, 2023. What was Theodore's income tax expense for 2024?

$375,000

$4,325; $34,600 ÷ 8 years = $4,325

Information for Hobson Corporation for the current year ($ in millions): Income from continuing operations before tax $ 155 Loss on discontinued operation (pretax) 32 Temporary differences (all related to operating income): Accrued warranty expense in excess of expense included in operating income 10 Depreciation deducted on tax return excess of depreciation expense 25 Permanent differences (all related to operating income): Nondeductible portion of entertainment expense 5 The applicable enacted tax rate for all periods is 25%. How much tax expense on income from continuing operations would be reported in Hobson's income statement?

$40.0 million

Information for Kent Corporation for the year 2024: Reconciliation of pretax accounting income and taxable income: Pretax accounting income$ 180,000 Permanent differences (15,000) 165,000 Temporary difference-depreciation(12,000) Taxable income $ 153,000 Cumulative future taxable amounts all from depreciation temporary differences: As of December 31, 2023$ 13,000 As of December 31, 2024$ 25,000 The enacted tax rate was 25% for 2023 and thereafter. What would Kent's income tax expense be in the year 2024?

$41,250

In 2024, Bodily Corporation reported $300,000 pretax accounting income. The income tax rate for that year was 25%. Bodily had an unused $120,000 net operating loss carryforward from 2022 when the tax rate was 30%. Bodily's income tax payable for 2024 would be:

$45,000.

Assume that Puritan Corporation operates in an industry for which NOL carryback is allowed. Puritan Corporation reported the following pretax accounting income and taxable income for its first three years of operations: 2023$ 350,000 2024 (600,000) 2025 700,000 Puritan's tax rate is 25% for all years. Puritan elected a loss carryback. As of December 31, 2024. Puritan was certain that it would recover the full tax benefit of the NOL that remained after the operating loss carryback. What would be the net loss in 2024 reported in Puritan's income statement?

$450,000

For its first year of operations, Tringali Corporation's reconciliation of pretax accounting income to taxable income is as follows: Pretax accounting income$ 300,000 Permanent difference (15,000) 285,000 Temporary difference- depreciation (20,000) Taxable income $ 265,000 Tringali's tax rate is 25%. Assume that no estimated taxes have been paid. What should Tringali report as its deferred tax liability as of the end of its first year of operations?

$5,000; $20,000 × 25% = $5,000

Nath Salons leased equipment from Li Company on January 1, 2024, in an operating lease. The present value of the lease payments discounted at 10% was $81,100. Ten annual lease payments of $12,000 are due at each January 1 beginning January 1, 2024. The amortization of the right-of-use asset for the reporting year ending December 31, 2024, would be:

$5,090.

$519,115

Assume that Puritan Corporation operates in an industry for which NOL carryback is allowed. Puritan Corporation reported the following pretax accounting income and taxable income for its first three years of operations: 2023$ 350,0002024(600,000)2025700,000 Puritan's tax rate is 25% for all years. Puritan elected a loss carryback. As of December 31, 2024. Puritan was certain that it would recover the full tax benefit of the NOL that remained after the operating loss carryback. What would Puritan report as net income for 2025?

$525,000

Paik Leasing acquires equipment and leases it to customers under long-term sales-type leases. Paik earns interest under these arrangements at a 6% annual rate. Paik purchased a machine and then leased it for $300,000 under an arrangement that specified annual payments to be received for five years, beginning at the commencement of the lease. The lessee had the option to purchase the machine at the end of the lease term for $50,000 when it was expected to have a residual value of $80,000. What is the amount of the annual lease payments? Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. The present value of $1: n = 5, i = 6% is 0.74726. The present value of an ordinary annuity of $1: n = 5, i = 6% is 4.21236. The present value of an annuity due of $1: n = 5, i = 6% is 4.46511.

$58,820

Information for Kent Corporation for the year 2024: Reconciliation of pretax accounting income and taxable income: Pretax accounting income $ 180,000 Permanent differences (15,000) 165,000 Temporary difference-depreciation(12,000) Taxable income $ 153,000 Cumulative future taxable amounts all from depreciation temporary differences: As of December 31, 2023 $ 13,000 As of December 31, 2024 $ 25,000 The enacted tax rate was 25% for 2023 and thereafter. What should be the balance in Kent's deferred tax liability account as of December 31, 2024?

$6,250; $25,000 × 25% = $6,250

Refer to the following lease amortization schedule. The 10 payments are made annually starting with the beginning of the lease. Title does not transfer to the lessee and there is no purchase option or guaranteed residual value. The asset has an expected economic life of 12 years. The lease is noncancelable. What amount would the lessee record as annual amortization on the right-of-use asset using the straight-line method?

$6,328

Refer to the following lease amortization schedule. The 10 payments are made annually starting with the beginning of the lease. Title does not transfer to the lessee and there is no purchase option or guaranteed residual value. The asset has an expected economic life of 12 years. The lease is noncancelable. What amount would the lessee record as annual amortization on the right-of-use asset using the straight-line method?

$6,328; outstanding balance $63,282 ÷ 10 years = $6,328

During the current year, Stern Company had pretax accounting income of $45 million. Stern's only temporary difference for the year was rent received for the following year in the amount of $15 million. Stern's taxable income for the year would be:

$60 million.

Assume that Puritan Corporation operates in an industry for which NOL carryback is allowed. Puritan Corporation reported the following pretax accounting income and taxable income for its first three years of operations: 2023$ 350,000 2024 (600,000) 2025 700,000 Puritan's tax rate is 25% for all years. Puritan elected a loss carryback. As of December 31, 2024. Puritan was certain that it would recover the full tax benefit of the NOL that remained after the operating loss carryback. What did Puritan report on December 31, 2024, as the deferred tax asset for the NOL carryforward?

$62,500

Warren Company recorded a right-of-use asset of $800,000 in a 10-year finance lease. The interest rate charged by the lessor was 8%. The balance in the right-of-use asset after two years will be:

$640,000

For its first year of operations, Tringali Corporation's reconciliation of pretax accounting income to taxable income is as follows: Taxable income $ 265,000 Tringali's tax rate is 25%. Assume that no estimated taxes have been paid. What should Tringali report as income tax payable for its first year of operations?

$66,250

$7,400;

Karla Salons leased equipment from Smith Company on July 1, 2024, in a finance lease. The present value of the lease payments discounted at 10% was $81,100. Ten annual lease payments of $12,000 are due each year beginning July 1, 2024. Smith Company had constructed the equipment recently for $66,000, and its retail fair value was $81,100. The total decrease in earnings (pretax) reported in Karla's income statement for the year ended December 31, 2024, would be (ignore taxes):

$7,510.

For the current year ($ in millions), Centipede Corporation had $80 in pretax accounting income. This included warranty expense of $7 and $20 in depreciation expense. Two million of warranty costs were incurred, and depreciation deductions in the tax return amounted to $35. In the absence of other temporary or permanent differences, what was Centipede's taxable income?

$70 million

For its first year of operations, Tringali Corporation's reconciliation of pretax accounting income to taxable income is as follows: Tringali's tax rate is 25%. Assume that no estimated taxes have been paid. What should Tringali report as its income tax expense for its first year of operations?

$71,250

On September 1, 2024, Custom Shirts Incorporated entered into a lease agreement appropriately classified as an operating lease. The lease term is three years. The annual payments by Custom Shirts are (a) $20,000 for year 1, (b) $24,000 for year 2, and (c) $28,000 for year 3. How much total lease expense will Custom Shirts recognize for 2024?

$8,000; $ 72,000 ÷ 3 × 4/12=$ 8,000

In 2023, HD had reported a deferred tax asset of $90 million with no valuation allowance. At December 31, 2024, the account balances of HD Services showed a deferred tax asset of $120 million before assessing the need for a valuation allowance and income taxes payable of $80 million. HD determined that it was more likely than not that 30% of the deferred tax asset ultimately would not be realized. HD made no estimated tax payments during 2024. What amount should HD report as income tax expense in its 2024 income statement?

$86 million

Blue Company recorded a right-of-use asset of $100,000 in a 10-year operating lease. Payments of $16,275 are made annually at the end of each year. The interest rate charged by the lessor was 10% and was known by Blue. The balance in the right-of-use asset after two years will be:

$86,823.

On January 1, Keunho Industries leased equipment to a customer for a four-year period, at which time possession of the leased asset will revert back to Keunho. The equipment cost Keunho $350,000 and has an expected useful life of six years. Its normal sales price is $350,000. The residual value after four years is $50,000. Lease payments are due on December 31 of each year, beginning with the first payment at the end of the first year. The interest rate is 5%. What is the amount of the annual lease payments? Note: Round your answer to the nearest whole dollar amount. The present value of $1: n = 4, i = 5% is 0.82270. The present value of an ordinary annuity of $1: n = 4, i = 5% is 3.54595. The present value of an annuity due of $1: n = 4, i = 5% is 3.72325.

$87,104;

$893

Wayne Corporation had a decrease in deferred tax liability of $20 million, a decrease in deferred tax assets of $10 million, and an increase in tax payable of $100 million. The company is subject to a tax rate of 25%. The total income tax expense for the year was:

$90 million.

Information for Hobson Corporation for the current year ($ in millions): Income from continuing operations before tax $ 155 Loss on discontinued operation (pretax) 32 Temporary differences (all related to operating income): Accrued warranty expense in excess of expense included in operating income 10 Depreciation deducted on tax return in excess of depreciation expense 25 Permanent differences (all related to operating income): Nondeductible portion of entertainment expense 5 The applicable enacted tax rate for all periods is 25%. What should Hobson report as net income?If a company's deferred tax asset is not reduced by a valuation allowance, the company believes it is more likely than not that:If a company's deferred tax asset is not reduced by a valuation allowance, the company believes it is more likely than not that:

$91.0 million

I.D. Clair Company recorded a right-of-use asset of $100,000 in a 10-year operating lease. Payments of $14,795 are made annually on January 1 of each year beginning January 1, 2024. The interest rate charged by the lessor was 10%. The balance in the right-of-use asset on December 31, 2024, will be:

$93,726.

On January 1, Sepe Vineyard Supply leased a truck for a five-year period, at which time possession of the truck will revert back to the lessor. Annual lease payments are $11,000 due on December 31 of each year, calculated by the lessor using a 4% discount rate. If Sepe's revenues exceed a specified amount during the lease term, Sepe will pay an additional $3,000 lease payment at the end of the lease. Sepe estimates a 70% probability of meeting the target revenue amount. What amount, if any, should be added to the right-of-use asset and lease liability under the contingent rental agreement?

Pevzner leased a machine for a ten-year non-cancelable term. At the end of the ten-year term, Pevzner has five consecutive one-year renewal options. A replacement machine can be acquired at the end of the term for the leased machine, but due to an expensive installation process and Pevzner's lease term for its store, Pevzner expects to lease the machine for 12 years. What is the lease term?

12 years

12%

17.5 million

Under current tax law for an industry where NOL carryback is allowed, generally a net operating loss may be carried back:

2 years.

Clinton Corporation operates in an industry for which NOL carryback is not allowed, and had the following pretax income (loss) over its first three years of operations 2022 $ 1,200,000 2023 (900,000) 2024 1,500,000 For each year there were no deferred income taxes and the tax rate was 25%. No valuation account was deemed necessary for the deferred tax asset as of December 31, 2023. What was Clinton's income tax expense in 2024?

375,000

Pita Pub leased a specialty machine for a five-year non-cancelable term. At the end of the five-year term, Pita Pub has four consecutive one-year renewal options. A replacement machine can be acquired, but due to an expensive installation process and Pita Pub's lease term for its mall location, Pita Pub expects to lease the machine for seven years. What is the lease term?

7 years

Bhat Creations leased kitchen equipment under a five-year lease with an option to renew for three years at the end of five years and an option to renew for an additional three years at the end of eight years. The first three-year renewal option can be exercised for one-half the original and usual rate. What is the length of the lease term that Bhat Creations should assume in recording the transactions related to the lease?

8 Years

M & O Company is preparing an Excel spreadsheet for a 5-year finance lease. The implicit interest rate in the lease is 6%. The beginning of the lease is January 1. Lease payments are made each December 31. A portion of the spreadsheet appears as follows: What formula should M & O use in cell C8?

= E7 * C1

= E7 − D8

C Corporation, a lessee, has a rate of return on assets of 10%. The rate of return on assets is immediately increased when C records:

A Finance Lease An Operating Lease no no

B Corporation is a lessee and has a debt/equity ratio of 2 to 1. The debt/equity ratio is increased when B records:

A Finance Lease An Operating Lease yes yes

Brady's listing of deferred tax assets and liabilities includes the following for operations in the tax jurisdictions of Tambura and Nileboo: Tambura: Deferred tax asset of $5 million Valuation allowance of $2 million Deferred tax liability of $14 million Nileboo: Deferred tax asset of $18 million Deferred tax liability of $3 million Brady files separate tax returns in Tambura and Nileboo. Which of the following disclosures of deferred tax assets and liabilities would Brady's balance sheet include?

A deferred tax liability of $11 million and a deferred tax asset of $15 million; Tambura has a net deferred tax liability of $14 − ($5 − $2) = $11 million, and Nileboo has a net deferred tax asset of $18 − $3 = $15 million.

Assuming no other deferred tax items exist in a particular year, a net operating loss (NOL) carryforward will be shown in the balance sheet at the end of the NOL year as:

A noncurrent deferred tax asset.

On its tax return at the end of the current year Webnet Inc. has $6 million of tax depreciation in excess of depreciation in its income statement. A disclosure note reveals that $1 million of the $6 million difference will reverse itself next year, and the remainder will reverse over the next 4 years. In the absence of other temporary differences, in the balance sheet at the end of the current year Webnet would report:

A noncurrent deferred tax liability.

In reconciling net income to taxable income, interest earned on municipal bonds is:

A permanent difference.

Which of the following might shorten the term of the lease?

A purchase option

Barr Corporation is the lessee in a finance lease. Barr would record:

A right-of-use asset.

Recording a sales-type lease with a selling profit is similar to recording:

A sale of merchandise on account.

Information for Hobson Corporation for the current year ($ in millions): Income from continuing operations before tax $ 155 Loss on discontinued operation (pretax) 32 Temporary differences (all related to operating income): Accrued warranty expense in excess of expense included in operating income 10 Depreciation deducted on tax return in excess of depreciation expense 25 Permanent differences (all related to operating income): Nondeductible portion of entertainment expense 5 The applicable enacted tax rate for all periods is 25%. How should Hobson report tax on the discontinued operation?

A tax benefit of $8 million to net against the $32 million pretax loss

Which of the following usually results in an increase in a deferred tax asset?

Accelerated depreciation for tax reporting and straight-line depreciation for financial reporting Prepaid insurance Subscriptions delivered for which customers had paid in advance None

Which of the following creates a deferred tax liability?

Accelerated depreciation in the tax return.

Of the following temporary differences, which one ordinarily creates a deferred tax asset?

Accrued warranty expense

When tax rates are changed subsequent to the creation of a deferred tax asset or liability, GAAP requires that:

All deferred tax accounts be adjusted to reflect the new tax rates.

A sales-type lease is reported in the lessor's balance sheet as:

An asset.

Gopal Eatery leased restaurant equipment from Krishnan Leasing. Krishnan earns interest under such arrangements at a 6% annual rate. The lease term is eight months with monthly payments of $20,000 due at the end of each month. Gopal Eatery elected the short-term lease option. What is the effect of the lease on Gopal Eatery's earnings during the eight-month term (ignore taxes)?

An expense of $20,000 at the end of each of the 8 months

Which of the following creates a deferred tax asset?

An unrealized loss from recording investments at fair value

For the lessee to account for a lease as a finance lease, the lease must meet:

Any one of the five criteria specified by GAAP regarding accounting for leases.

For the lessor to account for a lease as a sales-type lease, the lease must meet

Any one of the five criteria specified by GAAP regarding accounting for leases.

For a finance lease, an amount equal to the present value of the lease payments should be recorded by the lessee as a(n):

Asset and a liability.

The lessee's option to purchase a leased asset at a price that is sufficiently lower than the asset's expected fair value so that the exercise of the option appears reasonably certain sometimes is called a:

Bargain purchase option.

If the lessor records deferred lease revenue at the beginning of a lease term, the lease must:

Be an operating lease.

The following information relates to Franklin Freightways for its first year of operations (data in millions of dollars): Pretax accounting income: $ 195 Pretax accounting income included: Overweight fines (not deductible for tax purposes) 5 Depreciation expense 70 Depreciation in the tax return 110 The applicable tax rate is 25%. There are no other temporary or permanent differences. Which of the following must Franklin Freightways disclose related to the income tax expense reported in the income statement ($ in millions)?

Both the current portion of the tax expense of $40 and the deferred portion of the tax expense of $10

On January 1, 2024, Wellburn Corporation leased an asset from Tabitha Company. The asset originally cost Tabitha $300,000. The lease agreement is an operating lease that calls for four annual payments beginning on January 1, 2024, in the amount of $36,000. The other three remaining payments will be made on January 1 of each subsequent year. Which of the following journal entries should Tabitha record on January 1, 2024?

Cash36,000 Deferred revenue 36,000

For reporting purposes, current deferred tax assets and current deferred tax liabilities for the same company and tax jurisdiction are:

Combined with noncurrent deferred tax assets and noncurrent deferred tax liabilities in the balance sheet to show a single net noncurrent amount.

GAAP regarding accounting for income taxes requires which of the following procedures?

Computation of deferred tax assets and liabilities based on temporary differences.

The valuation allowance account that is used in conjunction with deferred tax assets is a(n):

Contra asset.

Recognizing tax benefits in a loss year due to a net operating loss carryforward requires:

Creating a deferred tax asset.

Lewis Associates. operates in an industry for which NOL carryback is not allowed, and had the following pretax income (loss) over its first three years of operations 2022 $ 1,000,000 2023 (1,800,000) 2024 1,500,000 For each year there were no deferred income taxes. The tax rate was 25% in all years. No valuation account was deemed necessary for the deferred tax asset as of December 31, 2023. What entry to deferred tax assets would Lewis make in 2024?

Credit of $300,000

Advance payments made by the lessee on an operating lease are considered to be:

Deferred revenue to the lessor.

A reconciliation of pretax financial statement income to taxable income is shown below for See Shipping for the year ended December 31, 2024, its first year of operations. The income tax rate is 25%. Pretax accounting income (income statement)$ 600,000 Installment income taxable upon receipt next year(30,000) Warranty expense in excess of deductible amount5,000 Tax depreciation in excess of income statement amount(20,000) Taxable income (tax return)$ 555,000 What amount should See report as a noncurrent item related to deferred income taxes in its 2024 balance sheet?

Deferred tax liability of $11,250

Using straight-line depreciation for financial reporting purposes and accelerated depreciation for tax purposes in the first year of an asset's life creates a:

Deferred tax liability.

Damon is the lessee in connection with a finance lease. Damon will not record:

Depreciation expense.

Matt Company is the lessor in connection with an operating lease. Matt Company would record:

Depreciation expense.

Minnetonka Company leases an asset. Information regarding the lease: Fair value of the asset: $400,000. Useful life of the asset: 6 years with no salvage value. Lease term is 5 years. Annual lease payments are $60,000 Implicit interest rate: 11%. Minnetonka can purchase the asset at the end of the lease period for $50,000. What type of lease is this?

Finance

From the perspective of the lessee, leases may be classified as either:

Finance or operating.

By the lessor, a lessee-guaranteed residual value at the beginning of a finance lease should be:

Included as part of lease payments at present value.

At the beginning of a finance lease, a guaranteed residual value should be

Included as part of lease payments only to the extent that guaranteed residual value is expected to exceed estimated residual value.

At the beginning of a finance lease, a guaranteed residual value should be:

Included as part of lease payments only to the extent that guaranteed residual value is expected to exceed estimated residual value.

By the lessee, a lessee-guaranteed residual value at the beginning of a finance lease should be:

Included as part of lease payments only to the extent that guaranteed residual value is expected to exceed estimated residual value.

Which of the following typically causes a permanent difference between taxable income and pretax accounting income?

Interest income on municipal bonds

On January 1, 2024, Calloway Company leased a machine to Zone Corporation. The lease qualifies as a sales-type lease. Calloway paid $240,000 for the machine and is leasing it to Zone for $34,000 per year, an amount that will return 10% to Calloway. The present value of the lease payments is $240,000. The lease payments are due each January 1, beginning in 2024. What is the appropriate interest entry on December 31, 2024?

Interest receivable 20,600 Interest revenue 20,600; $240,000-(34,000) *.10

Which of the following causes a permanent difference between taxable income and pretax accounting income?

Investment expenses incurred to obtain tax-exempt income

A short-term lease:

Is not required to be accounted for by the short-cut method if using IFRS.

The effect of a change in tax rates:

Is reflected in income from continuing operations

The effect of a change in tax rates:

Is reflected in income from continuing operations.

If it is "reasonably certain" that the lessee will exercise a purchase option:

It's assumed that the lease term ends on the date that the option is expected to be exercised. The lease is classified as a finance/sales-type lease. Both the lessee and the lessor consider the exercise price of the option to be an additional cash payment.

If the residual value of a leased asset turns out to be more than the amount guaranteed by the lessee, the:

Lessor is not obligated to compensate the lessee for the excess.

Which of the following would never require reporting deferred tax assets or deferred tax liabilities?

Life insurance premiums for the payer's benefit

Crystal Corporation makes $2,000 payments every month for leasing office equipment. Crystal recorded a lease payment as follows:

Operating lease.

Which of the following causes a temporary difference between taxable and pretax accounting income?

MACRS used for depreciating equipment

If a company's deferred tax asset is not reduced by a valuation allowance, the company believes it is:

More likely than not that sufficient taxable income will be generated in future years to realize the full tax benefit.

Assume that Reliable Corporation operates in an industry for which NOL carryback is allowed. Reliable Corporation had a pretax accounting income of $30 million this year. This included the collection of $40 million of life insurance proceeds when several key executives died in a plane crash. Temporary differences for the current year netted out to zero. Reliable has had a 25% tax rate and taxable income of $120 million over the previous two years and plans to elect a net operating loss carryback for tax purposes. In the current year financial statements, Reliable would report:

Net income of $32.5 million.

On January 1, Porter Moving and Storage leased a truck for a four-year period, at which time possession of the truck will revert back to the lessor. Annual lease payments are $30,000 due on December 31 of each year, calculated by the lessor using a 5% discount rate. If Porter's revenues exceed a specified amount during the lease term, Porter will pay an additional $12,000 lease payment at the end of the lease. Porter estimates a 60% probability of meeting the target revenue amount. What amount, if any, should be added to the right-of-use asset and lease payable under the contingent rent agreement?

No additional amount should be added.

A reconciliation of pretax financial statement income to taxable income is shown below for Chan Incorporated for the year ended December 31, 2024, its first year of operations. The income tax rate is 25%. Pretax accounting income (income statement) $ 500,000 Inventory impairments in excess of deductible amount 40,000 Depreciation in excess of financial statement amount (120,000) Taxable income (tax return) $ 420,000 The inventory impairments relate to Chan's Columbian tax return. The depreciation relates to Chan's U.S. tax return. What amount(s) should Chan report related to deferred income taxes in its 2024 balance sheet?

Noncurrent deferred tax asset of $10,000 and noncurrent deferred tax liability of $30,000; $40,000 × 25% = $10,000 deferred tax asset $120,000 × 25% = $30,000 deferred tax liability

A reconciliation of pretax financial statement income to taxable income is shown below for Fieval Industries for the year ended December 31, 2024, its first year of operations. The income tax rate is 25%. Pretax accounting income (income statement) $ 300,000 Interest revenue on municipal securities (15,000) Warranty expense in excess of deductible amount 25,000 Depreciation in excess of financial statement amount (70,000) Taxable income (tax return) $ 240,000 What amount(s) should Fieval report related to deferred income taxes in its 2024 balance sheet?

Noncurrent deferred tax liability of $11,250; $25,000 × 25% = $6,250 deferred tax asset $70,000 × 25% = $17,500 deferred tax liability The deferred tax asset and liability would be offset and shown as a single noncurrent deferred tax liability.

Due to differences between depreciation reported in the income statement and depreciation deducted for tax purposes, Lucas Corporation has $2 million in temporary differences that will increase taxable income next year. Assuming that Lucas has no other temporary differences, deferred income taxes should be reported in this year's ending balance sheet as a:

Noncurrent deferred tax liability.

The valuation allowance account that is used in conjunction with deferred taxes relates:

Only to deferred tax assets.

A lessee will reassess variable lease payments that depend on an index or a rate:

Only when the lessee remeasures the right-of-use asset and lease liability for other reasons.

Which of the following is not one of the steps in the four-step method used to calculate tax expense?

Plug tax payable

Which of the following usually results in an increase in a deferred tax liability?

Prepaid operating expenses, currently deductible

The appropriate asset value reported in the balance sheet by the lessee for an operating lease is:

Present value of the lease payments.

The lessee normally measures the lease liability to be recorded as the:

Present value of the lease payments.

S Corporation has a rate of return on assets of 10% and a debt/equity ratio of 2 to 1. The immediate impact of recording a finance lease on these ratios is a(n):

Return on Assets Debt/Equity decrease increase

A noncancelable lease contains an option to purchase a leased asset at a price that is sufficiently lower than the asset's expected fair value so that the exercise of the option appears reasonably certain. The fair value of the asset exceeds the lessor's cost of the asset. Therefore, the lease will be accounted for by the lessor as a(n):

Sales-type lease.

Which of the following differences between financial accounting and tax accounting ordinarily creates a deferred tax asset?

Subscriptions collected in advance

Which of the following does not give rise to a permanent difference?

Subscriptions collected in advance

Distinguishing between operating and finance leases is due in large part to the accounting concept of:

Substance over form

IIf a company's deferred tax asset is not reduced by a valuation allowance, the company believes it is more likely than not that:

Sufficient taxable income will be generated in future years to realize the full tax benefit.

If a company's deferred tax asset is not reduced by a valuation allowance, the company believes it is more likely than not that:

Sufficient taxable income will be generated in future years to realize the full tax benefit.

The following information relates to Franklin Freightways for its first year of operations (data in millions of dollars): Pretax accounting income: $ 195 Pretax accounting income included: Overweight fines (not deductible for tax purposes) 5 Depreciation expense 70 Depreciation in the tax return 110 The applicable tax rate is 25%. There are no other temporary or permanent differences. Franklin Freightways should have recorded ($ in millions):

Tax payable of $40.

If the lessor retains title to leased property under the terms of the lease:

The amount to be recovered through periodic lease payments is reduced by the present value of any residual amount.

Which of the following statements regarding lessee-guaranteed residual values is true for the lessee?

The asset and liability at the beginning of the lease should be increased by the present value of the residual value to the extent that guaranteed residual value is expected to exceed estimated residual value.

The five criteria provided in GAAP for distinguishing a finance lease from an operating lease do not include which of the following?

The collectibility of the lease payments must be reasonably predictable

For a right-of-use asset under a lease that qualifies as a finance lease because the lease contains a purchase option and the option is reasonably certain to be exercised, the amortization period used by the lessee must be:

The economic life of the asset at the time the lease agreement took effect.

Of the five criteria for a finance lease, which one is not applied if the lease begins "at or near the end" of the economic life of the underlying asset?

The economic life test.

When the total expenses over the life of an operating lease are compared to the total expenses over the life of a finance lease, one will find that:

The expenses of the finance lease and operating lease are equal.

Which of the following is not among the criteria for classifying a lease as a finance lease?

The lease term is for substantially all of the remaining economic life of the underlying asset.

If the lessee and lessor use different interest rates to account for a finance/sales-type lease, then:

The lessee is unaware of the lessor's implicit rate.

Which of the following statements regarding a lessee-guaranteed residual value is true?

The lessor's lease receivable should be increased by the amount of the residual value.

Sometimes lease payments are scheduled to be increased (or decreased) at some future date during the lease term, depending on whether or not some specified event occurs. Papaya Republic leases space in premium mall locations anticipating higher revenue. If the mall attracts a sufficiently higher number of shoppers, Papaya Republic pays the lessor part of the resulting higher profits, but if not, the Papaya Republic makes only the normal lease payments. Management's policy is to include the variable lease payments as part of the lease payments used to calculate the lessee's lease liability and right-of-use asset if the payments are probable. Which of the following is an accurate statement regarding the company's policy?

The policy is inappropriate because the amounts of future lease payments are uncertain and often avoidable and thus should not be considered as part of the lease payments.

Mann Company is the lessor in a six-year lease that the lessor classifies as a sales-type lease. The lease payments begin December 31, 2024. The agreement specifies that Woo Corporation make equal annual lease payments on December 31 of each year. In its income statement for the year ended December 31, 2025:

Woo will report interest expense and amortization expense.

A magazine publisher collects one year in advance for subscription revenue. In the year of providing the magazines to customers, the company would record a(n):

decrease in a deferred tax asset.

According to GAAP for accounting for income taxes, when a company has a net operating loss carryforward, a:

deferred tax asset is recorded along with any applicable valuation allowance.

The following information relates to Franklin Freightways for its first year of operations (data in millions of dollars): Pretax accounting income: $ 195 Pretax accounting income included: Overweight fines (not deductible for tax purposes) 5 Depreciation expense 70 Depreciation in the tax return 110 The applicable tax rate is 25%. There are no other temporary or permanent differences. Franklin's balance sheet at the end of its first year would report a:

deferred tax liability of $10 million among noncurrent liabilities.

The following information relates to Franklin Freightways for its first year of operations (data in millions of dollars): Pretax accounting income: $ 195 Pretax accounting income included: Overweight fines (not deductible for tax purposes) 5 Depreciation expense 70 Depreciation in the tax return 110 The applicable tax rate is 25%. There are no other temporary or permanent differences. Franklin's net income ($ in millions) is:

deferred tax liability of $10 million among noncurrent liabilities; ($40 × 25%)

The financial reporting carrying value of Boze Music's only depreciable asset exceeded its tax basis by $150,000 at December 31, 2024. This was a result of differences between straight-line depreciation for financial reporting purposes and accelerated depreciation for tax purposes. The asset was acquired earlier in the year. Boze has no other temporary differences. The enacted tax rate is 25% for 2024 and 30% thereafter. Boze should report the deferred tax effect of this difference in its December 31, 2024, balance sheet as a(n):

deferred tax liability of $45,000.

Leasing has become the number one method of external financing by U.S. companies. Reasons include each of the following except:

extended use of the asset.

finance lease.

Estimated employee compensation expenses earned during the current period but expected to be paid in the next period causes a(n):

increase in a deferred tax asset.

In 2024, Magic Table Incorporated decides to add a 36-month warranty on its new product sales. Warranty costs are tax deductible when claims are settled. In its financial statements for 2024, Magic Table Inc incurs a(n):

increase in a deferred tax asset.

Plutonic Incorporated had $400 million in taxable income for the current year. Plutonic also had an increase in deferred tax liabilities of $50 million and recognized tax expense of $80 million. The company is subject to a tax rate of 25%. The change in deferred tax assets (ignoring any valuation allowance) was a(n):

increase of $70 million.; Income tax payable ($400 × 25%)=100=50-80

Under current tax law a net operating loss typically may be carried forward:

indefinitely.

In connection with a lease of more than 12 months, the lessee always will record each of the following except:

interest revenue.

Interest expense is not calculated as the effective interest rate times the amount of the debt outstanding during the interest period for:

lease receivable.

Andres Company is the lessee in an operating lease in which the asset's economic life and lease term are different. Andres will amortize the

leased asset at an amount that increases each period.

Andres Company is the lessee in an operating lease in which the asset's economic life and lease term are different. Andres will amortize the:

leased asset at an amount that increases each period.

In an operating lease, the amortization of the right-of-use asset in the third year is:

less than in the fourth year.

In an eight-year finance lease, the portion of the annual lease payment that represents interest in the lease's third year payment is:

less than in the second year.

lessee in a finance lease.

We classify a lease as a finance lease if the:

lessee obtains control of the use of the asset.

In a finance lease, the:

lessee records an asset and a liability for the present value of lease payments.

In an operating lease, the:

lessee records an asset and a liability for the present value of lease payments.

If the lessee expects to obtain title to leased property due to a purchase option that is reasonably certain to be exercised or the passage of title at the end of the lease term, the:

lessor ignores any residual value for the leased property.

In a ten-year finance lease agreement, the portion of the periodic lease payment that represents interest in the third year is:

more than in the fourth year

At December 31, 2024, Moonlight Bay Resorts had the following deferred income tax items: Deferred tax asset of $54 million related to a current liability Deferred tax asset of $36 million related to a noncurrent liability Deferred tax liability of $120 million related to a noncurrent asset Deferred tax liability of $72 million related to a current asset In its balance sheet dated December 31, 2024, Moonlight Bay should report a:

noncurrent deferred tax liability of $102 million.

Cook the Books is the lessee in a lease agreement. From the perspective of the lessee, the lease may be classified as:

operating or finance.

When a finance lease is first recorded at the beginning of the lease, the entry made by the lessee typically includes a debit to:

right-of-use asset.

sales-type lease with selling profit.

One of the five criteria for a finance lease specifies that the present value of the lease payments be equal to or greater than:

substantially all of the fair value of the asset.

One of the five criteria for a finance lease specifies that the lease term be equal to or greater than:

the major part of the remaining economic life of the leased property.

In a finance lease, the amortization of the right-of-use asset in the third year is:

the same as in the fourth year.

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