Cott, Inc. prepared an interest amortization table for a fiveyear
lease payable with a bargain purchase option of $2,000, exercisable
at the end of the lease. At the end of the five years, the
balance in the leases payable column of the spreadsheet was zero.
Cott has asked Grant, CPA, to review the spreadsheet to determine
the error. Only one error was made on the spreadsheet.
Which of the following statements represents the best explanation
for this error?

The beginning present value of the lease did not include
the present value of the bargain purchase option.
Cott subtracted the annual interest amount from the
lease payable balance instead of adding it.
The present value of the bargain purchase option was
subtracted from the present value of the annual payments.
Cott discounted the annual payments as an ordinary
annuity, when the payments actually occurred at the
beginning of each period.

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