Question: Generally accepted accounting principles require that certain lease agreements be accounted for as purchases. The theoretical basis for this treatment is that a lease of
Generally accepted accounting principles require that certain lease agreements be accounted for as purchases. The theoretical basis for this treatment is that a lease of this type
| a. | effectively conveys all of the benefits and risks incident to the ownership of property. |
| b. | is an example of form over substance. |
| c. | provides the use of the leased asset to the lessee for a limited period of time. |
| d. | must be recorded in accordance with the concept of cause and effect. |
Equal monthly rental payments for a particular lease should be charged to Rental Expense by the lessee for which of the following?
Capital Lease Operating Lease
| a. | Yes No |
| b. | Yes Yes |
| c. | No No |
| d. | No Yes |
Wrench Repairs acquires equipment under a noncancelable lease at an annual rental of $45,000, payable in advance for five years. After five years, there is a bargain purchase option of $75,000. The appropriate interest rate is 12 percent. What is the total present value of the lease and the first year's interest expense?
| a. | $224,234 and $26,908 |
| b. | $224,234 and $21,508 |
| c. | $204,771 and $21,508 |
| d. | $204,771 and $19,173 |
On January 1, Landau Company signed a ten-year noncancelable lease for a new machine, requiring $45,000 annual payments at the beginning of each year. The machine has a useful life of 15 years, with no salvage value. Title passes to Landau at the lease expiration date. Landau uses straight-line depreciation for all of its plant assets. Aggregate lease payments have a present value on January 1 of $352,000, based on an appropriate rate of interest. For the first year, Landau should record depreciation (amortization) expense for the leased machine at
| a. | $45,000 |
| b. | $35,200 |
| c. | $23,467 |
| d. | $21,533 |
On January 1, 2014, Bullitt Corporation sold a machine to Sting Corporation and simultaneously leased it back for ten years. The following information is available regarding the lease:
| Estimated remaining useful life at December 31, 2013 | 10 years | ||||||
| Sales price | $ 90,000 | ||||||
| Carrying value at December 31, 2013 | $ 52,500 | ||||||
| Annual rental under leaseback | $ 14,600 | ||||||
| Interest rate implicit in the lease | 10% | ||||||
| Present value of the lease rentals | $ 89,711 | ||||||
| ($14,600 for 10 years at 10%) | |||||||
How much profit should Bullitt recognize on January 1, 2014, on the sale of the machine?
| a. | $0. |
| b. | $37,211 |
| c. | $90,000 |
| d. | $37,500 |
Selected financial data of Nicholas Corporation for the year ended December 31, 2014, is presented below:
| Operating income ...................................... | $800,000 |
| Interest expense ...................................... | (150,000) |
| Income before income tax .............................. | $650,000 |
| Income tax expense .................................... | (220,000) |
| Net income ............................................ | $430,000 |
| Preferred stock dividends ............................. | (200,000) |
| Net income available to common stockholders ........... | $230,000 |
Common stock dividends were $120,000. The times-interest-earned ratio is
| a. | 2.9 to 1. |
| b. | 3.6 to 1. |
| c. | 4.3 to 1. |
| d. | 5.3 to 1. |
Form 1040 allows a taxpayer to report which of the following items that are not allowed for taxpayers who file Form 1040A:
| a. | Salary income. | |
| b. | Joint return status. | |
| c. | Withholding on wages. | |
| d. | Self-employment income. |
Oscar and Mary have no dependents and file a joint income tax return for 2016. They have adjusted gross income of $140,000 and itemized deductions of $30,000. What is the amount of taxable income that Oscar and Mary must report on their 2016 income tax return?
| a. | $97,400 | |
| b. | $101,900 | |
| c. | $102,000 | |
| d. | $110,000 | |
| e. | $136,000 |
As a Christmas thank you for being a good employee, Ed's TV Repair gave 62-year-old Edwina three shares of its stock worth $20 per share. Edwina then received dividends of $1 per share related to the stock. How much should be included in Edwina's gross income?
| a. | $0 | |
| b. | $3 | |
| c. | $60 | |
| d. | $63 | |
| e. | None of the above |
| Elmer received the following distributions from Virginiana Mutual Fund for the calendar year 2016:
Elsie, Elmer's wife, did not own any of the Virginiana Mutual Fund shares, but she did receive $1,475 in interest on a savings account at the Moss National Bank and $175 in interest on California Municipal Bonds. Elmer and Elsie filed a joint income tax return for 2016. What amount is reportable as taxable interest income?
|
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