Task 1

Blake County had the following agreements in 20X9. You have been asked to advise on the accounting treatment for each of these agreements. In the space provided, indicate whether each of these is (1) a short-term lease, (2) a lease, (3) a financed purchase, (4) a sale of an asset, or (5) none of the above.

A	B
Agreement	Accounting treatment
1. Blake County obtains the right to use equipment that has a market rental rate of $24,000 per year for five years for $1 per year.	Short-term lease Lease Financed purchase Sale of an asset None of the above
2. Blake County enters into a 6-month lease on July 1, 20X9, that includes an option to extend the lease an additional 6 months.	Short-term lease Lease Financed purchase Sale of an asset None of the above
3. Blake County entered into a 12-month lease with an option to renew the lease for 12 months at a time up to 29 times.	Short-term lease Lease Financed purchase Sale of an asset None of the above
4. Blake County enters into a multiyear contract that conveys the exclusive right to use a building on weekends. Other parties use the building on the other days.	Short-term lease Lease Financed purchase Sale of an asset None of the above
5. Blake County enters into a 20-year contract on a building that transfers ownership to Blake County at the end of the contract period.	Short-term lease Lease Financed purchase Sale of an asset None of the above
6. Blake County enters into a 20-year contract on a building that transfers ownership to Blake County at the end of the contract period. The contract contains an option that allows Blake County to terminate the lease at the end of each year. It is likely that Blake County will exercise the option.	Short-term lease Lease Financed purchase Sale of an asset None of the above

Task 2

Blake City enters into a lease contract to obtain equipment. The lease begins January 1, 20X1, and is for noncancelable period of 36 months. The city has an option to extend the lease for an additional 24 months. The city is doubtful that it will exercise the option to extend the lease. At the end of the lease term (either 36 or 60 months, depending on whether the option to extend is exercised), the lease may be continued on a month-to-month basis for up to 12 months, which either the city or the lessor can cancel. The monthly base rent is $2,000 per month, due on the first of each month, and includes 250 machine-hours per month. There is $10 fee for each machine-hour over 250. In addition, the lease contract requires $100 per month payment for routine repairs and maintenance. The lease contract states an interest rate of 5%. A separate contract for delivery and installation fee of $1,391 is due with the first lease payment. The city chooses to amortize the lease equipment on a straight-line basis.

Number of Months	Present value interest factors $1 annuity due monthly basis using 5% annual rate
24	22.8889
36	33.5047
37	34.3657
38	35.2231
39	36.0770
40	36.9273
41	37.7740
42	38.6173
43	39.4571
44	40.2933
45	41.1261
46	41.9555
47	42.7814
48	43.6039
49	44.4230
50	45.2386
51	46.0509
52	46.8598
53	47.6654
54	48.4676
55	49.2665
56	50.0621
57	50.8544
58	51.6433
59	52.4290
60	53.2115
61	53.9907
62	54.7667
63	55.5394
64	56.3090
65	57.0753
66	57.8385
67	58.5985
68	59.3554
69	60.1091
70	60.8597
71	61.6071
72	62.3515

A	B
Question	Answer
1. What is the lease term?	36 months 48 months 60 months 72 months
2. What is initial lease liability amount?	$66,731 $67,009 $70,068 $70,360
3. What is the initial value of the lease asset?	$67,009 $68,400 $70,360 $71,751
4. What is the amount of monthly amortization expense? Enter the amount in whole dollars without a $ or comma (example: 1000 rather than $1,000 or 1,000 or $1000).	Click to answer