True or False (If false, explain why it's false) 1. A lease that contains a purchase option must be capitalized by the lessee. 2. A capitalized leased asset is always depreciated over the term of the lease by the lessee.

Multiple Choice 3. On January 1, 2019, Dean Corporation signed a ten-year noncancelable lease for certain machinery. The terms of the lease called for Dean to make annual payments of $100,000 at the end of each year for ten years with title to pass to Dean at the end of this period. The machinery has an estimated useful life of 15 years and no salvage value. Dean uses the straight-line method of depreciation for all of its fixed assets. Dean accordingly accounted for this lease transaction as a finance lease. The lease payments were determined to have a present value of $671,008 at an effective interest rate of 8%. With respect to this capitalized finance lease, Dean should record for 2019 a. lease expense of $100,000. b. interest expense of $44,734 and depreciation expense of $38,068. c. interest expense of $53,681 and depreciation expense of $44,734. d. interest expense of $45,681 and depreciation expense of $67,101.

4. Pye Company leased equipment to the Polan Company on July 1, 2019, for a ten-year period expiring June 30, 2029. Equal annual payments under the lease are $80,000 and are due on July 1 of each year. The first payment was made on July 1, 2019. The rate of interest contemplated by Pye and Polan is 9%. The cash selling price of the equipment is $560,000 and the cost of the equipment on Pye's accounting records was $496,000. Assuming that the lease is appropriately recorded as a sale for accounting purposes by Eby, what is the amount of profit on the sale and the interest revenue that Pye would record for the year ended December 31, 2019? a. $64,000 and $50,400 b. $64,000 and $43,200 c. $64,000 and $21,600 d. $0 and $0