Question
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moun hould Young os 7, GAAP require that certain lease agreements be is that a A. Provides the use of the leased asset to the lessee for a limited period of time B. Is an example of form over substance C. Conveys substantially all of the benefits and risks incident to the ownership of property aceounted for as parchases. The thbeoretical basis for ts his treaiment f this tve D. Must be recorded in accordance with the concept of cause and effect s Bobbins. Inc. leased a machine from Eddy Leasing Co. The lease qualifies as a capital lease and requires tes he lease specifies- aestimated vaue on of szo,000 beginning i option of $20,000 at the end of the tenth even though the machines estimated vabue on that date is 540 00. Bobbins incremental borrowing rate is 129%a borrowing nate is 129, even though the machine's esiteatedrate of 10% and a purchase The present value of an annuity due of one at ten yars is 6 759 10%% for ten years is 6.759 129% for ten years is 6.328 The present value of one at 10% for ten years is .386 12% for ten years is .322 What amount should Bobbins record as lease liability at the beginning of the lease term? A. $159,620 B. $142,900 .$137,000 $134.280 On January I, Year 4, Howard Co. as lessee signed a 5 year non-cancelable equipment lease with annual $200,000 beginning January 1, Year 4. There is no BPO or residual value. Howard treated this transaction as a %, what amount should Howard report as interest expense for the year ended December 31, Year 4? $63,400 83.400 41,500 100,000
Explanation / Answer
Question 6 is not visibile.
Question 7: Correct Answer is C.
Question 8 Lesse will use lower of incremental borrowing and implicite rate for calculation. Hence Rate will be 10% Present value of annual lease payment 20000*6.759 135180 Present value of purchase option 20000*0.386 7720 Lease Liability to be recorded 142900 Correct answer is B
