IRC issues a note with no stated interest rate in exchange for a machine. In accounting for
Question:
IRC issues a note with no stated interest rate in exchange for a machine. In accounting for the transaction, which of the following statements is true?
A. Both the note and machine are recorded at the face amount of the note or the fair value of the machine, whichever is more clearly determinable.
B. The machine should be depreciated over the note's term to maturity.
C. The note is recorded at its face amount unless the fair value of the machine is readily available.
D. If fair values of the note and machine are unavailable, the note should be recorded at its present value and discounted at the market rate of interest.
17. Lithium Inc. sells computer systems. Lithium leases computers to Evergreen Company on January 1, 2018. The manufacturing cost of the computers was $12 million.
This noncancelable lease had the following terms:
• Lease payments: $2,466,754 semiannually; first payment at January 1, 2018; remaining payments at June 30 and December 31 each year through June 30, 2022
• 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 at January 1, 2018: $20 million
Lithium would account for this as a/an
A. finance lease.
B. operating lease.
C. sales-type lease without selling profit.
D. sales-type lease with selling profit.
6. Blue Industries purchased a machine from Rust Corporation on October 1, 2018. In payment for the $144,000 purchase, Blue issued a one-year installment note to be paid in equal monthly payments at the end of each month. The payments include interest at the rate of 12%. Monthly installment payments are closest to
A. $12,000.
B. $12,445.
C. $12,794.
D. $12,668.
10. We classify a lease as a finance lease if the
A. present value of lease payments is less than the asset's fair value.
B. lessee obtains control of the use of the asset.
C. usual risks and rewards are retained by the lessor.
D. present value of lease payments is less than the asset's book value
Intermediate Accounting
ISBN: 978-0077400163
6th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson