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%) | |||||||
Step by Step Solution
There are 3 Steps involved in it
Here are the answers and explanations for each question 1 Theoretical basis for treating certain leases as purchases Question Generally accepted accou... View full answer
Get step-by-step solutions from verified subject matter experts