Chapter 20- Acc for leases multiple choice

a. $848,761

Metcalf Company leases a machine from Vollmer Corp. under an agreement that meets the criteria to be a finance lease for Metcalf. The six-year lease requires payment of$170,000 at the beginning of each year, including $25,000 per year for maintenance, insurance, and taxes. The incremental borrowing rate for the lessee is 10%; the lessor's implicit rate is 8% and is known by the lessee. The present value of an annuity due of 1for six years at 10% is 4.79079. The present value of an annuity due of 1 for six years at 8% is 4.99271. Metcalf should record the lease liability as a. $848,761. b. $814,435. c. $723,943. d. $694,665

b. the sales price less the present value of the unguaranteed residual value

A lessor with a sales-type lease involving an unguaranteed residual value at the end of the lease term will report sales revenue in the period of inception of the lease at which ofthe following amounts? a. the lease payments plus the unguaranteed residual value b. the sales price less the present value of the unguaranteed residual value c. the cost of the asset to the lessor, less the present value of any unguaranteed residual value d. the present value of the lease payments plus the present value of the unguaranteed residual value

c. $215,606.50

Colorful Cosmetics, Inc. has entered into a leasing agreement to rent equipment from Northwest Leasing services. There is no transfer of title, there is not a bargain purchase option, and the economic life test is not met. Based on the following information, what amount would be used in the 90% test for the present value of the lease payments? Annual Payments (1st day of the period) $50,000 Lease Term 5 years Unguaranteed Residual $10,000 Incremental Borrowing Rate 8% (lessor implicit rate is not known) PV Annuity Due PV Ordinary Annuity PV SingleSum 6%, 5 periods 4.46511 4.21236 .747268%, 5 periods 4.31213 3.99271 . 6805810%, 5 periods 4.16986 3.79079 .62092 a. $222,412.30 b. $250,000.00 c. $215,606.50 d. $260,000.00

c. $5,750

Farm Co. leased equipment to Union Co. on July 1, 2025, and properly recorded the sales-type lease at $135,000, the present value of the lease payments discounted at 10%. The first of eight annual lease payments of $20,000 due at the beginning of each year of the lease term was received and recorded on July 3, 2025. Farm had purchased the equipment for $110,000. What amount of interest revenue from the lease should Farm report in its 2025 income statement? a. $0 b. $5,500 c. $5,750 d. $6,750

a. $175,820

Haystack, Inc. manufactures machinery used in the mining industry. On January 2,2025, it leased equipment with a cost of $480,000 to Silver Point Co. The 5-year leasecalls for a 10% down payment and equal annual payments at the end of each year. The equipment has an expected useful life of 5 years. If the selling price of the equipment is$780,000, and the rate implicit in the lease is 8%, what are the equal annual payments?Sum, PV Annuity Due, PV Ordinary Annuity, PV SingleSum 8%, 5 periods 4.31213 3.99271 .68058 10%, 5 periods 4.16986 3.79079 .62092 a. $175,820 b. $162,795 c. $181,972 d. $195,356

d. amortization expense and interest expense

In a finance lease, the lessee records a. amortization expense only. b. interest expense only. c. lease expense only. d. amortization expense and interest expense.

c. should be recognized over the term of the lease using the effective interest method

In a lease that is recorded as a sales-type lease by the lessor, interest revenue a. should be recognized in full as revenue at the lease's inception. b. should be recognized over the term of the lease using the straight-line method. c. should be recognized over the term of the lease using the effective interest method. d. does not arise

c. use the implicit rate of the lessor, assuming that the implicit rate is known to the lessee

In computing the present value of the lease payments, the lessee should a. use its incremental borrowing rate in all cases. b. use both its incremental borrowing rate and the implicit rate of the lessor, assuming that the implicit rate is known to the lessee. c. use the implicit rate of the lessor, assuming that the implicit rate is known to the lessee. d. use the implicit rate in all cases

c. Finance lease Finance lease

Lease A does not contain a bargain purchase option, but the lease term is equal to 90 percent of the estimated economic life of the leased property. Lease B does not transfer ownership of the property to the lessee by the end of the lease term, but the lease term is equal to 75 percent of the estimated economic life of the leased property. How should the lessee classify these leases? Lease A Lease B a. Operating lease Finance lease b. Operating lease Operating lease c. Finance lease Finance lease d. Finance lease Operating lease

c. interest expense of $107,361 and amortization expense of $89,468

On January 1, 2025, Dean Corporation signed a ten-year noncancelable lease for certainmachinery. The terms of the lease called for Dean to make annual payments of $200,000at the end of each year for ten years with the title passing to Dean at the end of this period.The machinery has an estimated useful life of 15 years and no salvage value. Dean usesthe straight-line method of depreciation for all of its fixed assets. Dean accordingly accounted for this lease transaction as a finance lease. The lease payments were determined to have a present value of $1,342,016 at an effective interest rate of 8%.With respect to this lease, Dean should record for 2025 a. lease expense of $200,000. b. interest expense of $89,468 and amortization expense of $76,136. c. interest expense of $107,361 and amortization expense of $89,468 d. interest expense of $91,363 and amortization expense of $89,468

c. continues to recognize the underlying asset on its balance sheet and recognizes lease revenue

Under the operating lease method, the lessor a. no longer reports the underlying asset on its balance sheet. b. realizes a gross profit on the sale of the asset. c. continues to recognize the underlying asset on its balance sheet and recognizes lease revenue. d. recognizes rental revenue using the effective interest amortization method

b. All long-term leases are capitalized.

Which of the following best describes current practice in accounting for leases? a. Leases are not capitalized. b. All long-term leases are capitalized. c. Leases similar to installment purchases are capitalized. d. All leases are capitalized.