ACC322 Exam 3 Review n pra A. The lessee records depreciation and interest. B. T

Question

ACC322 Exam 3 Review n pra A. The lessee records depreciation and interest. B. The lessor records depreciation and lease revenue. C. The lessor transfers title at the end of the lease term. D. The lessee records a leased asset. 2. Which of the following statements is not correct for a capital lease? A. The lessee records depreciation and interest expense. B. The lessee records a leased asset. C. The lessor transfers title at the beginning of the lease term. D. The lessee records depreciation and lease revenue. Noncancellable term. Annual lease payment 40,000 2. Annual interest rate-9% 3. Lease term 8 years Asset's useful life-10 years 5 No BPO or transfer of ownership specified in contract 6. The lease is issued on Jan. 1.2011 7. All payments will be made at the beginning of each period (Jan 1.) 8Lease payments are collectable. All transaction costs are predictable. Is it a capital lease or operating lease? Why? 1) 2) What is the value of the lease at the inception of the lease (before the I" payment)?

Explanation / Answer

1) In an “Operating lease”, the leased asset is treated as a rented asset and the ownership of the asset remains with lessor. Hence, the depreciation and interest is recorded by lessor.

Hence, Option B is correct.

2) The lease revenue is always recorded by a lessor. Hence, Option D is an incorrect option.

3)i) This is an “Operating Lease” as the transfer of ownership is not mentioned in the contract.

ii) The value of the lease at the inception is the present value of all lease payments made during the lease period discounted at the annual interest rate.

The Value of the lease = $40,000 x (P/A,10%,8)
=> $40,000 x 5.535 = $221,400

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.