Reference no: EM133189354

Question - You notice that your client, Terry's landscaping, has recently started making payments to a new vendor. When you ask Terry what the payments are for he says he purchased a piece of machinery and provides you with the documentation. There's no purchase price or interest rate on the document, but there is a buyout option price listed, in the amount of $4200, along with an agreement of $448.85 for the next two years. How should this be recorded in the books?

1. Book an asset for the buyout amount and record the payments to a liability account for the loan.

2. Record the payments as cost of goods sold-equipment.

3. Record the payment as equipment lease expense and book the asset upon purchase.

4. Book a liability for the buyout amount and record the payments to an asset account.