Reference no: EM132784481

Questions -

Q1) On December 31, 20X4, Red co. leased a machine from Green co. for a seven-year period. Equal annual payments under the lease are $112,500, including $7,500 annual executory costs, and are due on December 31 of each year. The first payment was made on December 31, 20X4, and the second payment was made on December 31, 20X5. The seven lease payments are discounted at 9% over the lease term. The present value of lease payments at the inception of the lease and before the first annual payment was $576,500. The lease is appropriately accounted for as a finance lease by Red Co. In its December 31, 20X5 balance sheet, Red Co. should report a lease liability of:

A. $408,935

B. $576,500

C. $405,325

D. $525,000

Q2) On January 1, 20X1, Harrow Co. as lessee signed a five-year noncancelable equipment lease with annual payments of $100,000 beginning December 31, 20X1. Harrow treated this transaction as a finance lease. The five lease payments have a present value of $379,000 at January 1, 20X1, based on interest of 10%. What amount should Harrow report as interest expense for the year ended December 31, 20X1?

A. $37,900

B. $27,900

C. $24,200

D. $0

Q3) On January 1, year 1, Eber Co. leased equipment under a four-year finance lease. The present value of the lease payments is $348,680. The equipment had a five-year economic life and a $20,000 guaranteed residual value. The equipment reverts to the lessor at the end of the lease. What amount should Eber report as amortization of the lease at December 31, year 1?

A. $65,736

B. $69,736

C. $82,170

D. $87,170

Q4) On July 1, 20X9, Gee, Inc. leased a delivery truck from Marr Corp. under a 3-year operating lease. Total rent for the term of the lease will be $36,000, payable as follows:

12 months at $ 500 = $ 6,000

12 months at $ 750 = 9,000

12 months at $1,750 = 21,000

All payments were made when due. In Marr's June 30, 20X11, balance sheet, the accrued rent receivable should be reported as

A. $0

B. $9,000

C. $12,000

D. $21,000

Q5) On August 1, 20X0, Metro, Inc. leased a luxury apartment unit to Klum. The parties signed a 1-year lease beginning September 1, 20X0, for a $1,000 monthly rent payable on the first day of the month. At the August 1 signing date, Metro collected $540 as a nonrefundable fee for allowing Klum to sign a 1-year lease (the normal lease term is three years) and $1,000 rent for September. Klum has made timely payments each month, but prepaid January's rent on December 20. In Metro's 20X0 income statement, rent revenue should be reported as

A. $4,000

B. $4,180

C. $4,540

D. $5,180

Q6) A company enters into a three-year operating lease agreement effective January 1, year 1. The amounts due on the first day of each year are $25,000 in year 1, $30,000 in year 2, and $35,000 in year 3. What amount, if any, is the deferred rent liability on the first day of year 2?

A. $0

B. $5,000

C. $60,000

D. $65,000

Q7) Green Co. incurred leasehold improvement costs for its leased property. The estimated useful life of the improvements was 15 years. The remaining term of the nonrenewable lease was 20 years. These costs should be

A. Expensed as incurred.

B. Capitalized and depreciated over 20 years.

C. Capitalized and expensed in the year in which the lease expires.

D. Capitalized and depreciated over 15 years

Q8) Rig Co. sold its factory at a gain, and simultaneously leased it back for 10 years. The factory's remaining economic life is 20 years. The lease was reported appropriately as an operating lease. At the time of sale, Rig should report the gain as

A. A component of Other Comprehensive Income, net of income tax.

B. An asset valuation allowance.

C. A separate component of stockholders' equity.

D. Gain on sale, on the income statement

Q9) Jarvis Company leased a new machine beginning on January 1, 20X1. The lease, which has an interest rate of 6%, is for 5 years and requires annual payments of $10,000 on each December 31. The present value of an ordinary annuity of $1 at 6% for 5 periods is 4.212. Title to the machine remains with the lessor. The machine, which cost the lessor $30,000, has a useful life of 6 years and will be depreciated on a straight-line basis. What will be the carrying value of the machine at December 31, 20X2?

A. $28,080 on the lessee's books

B. $25,272 on the lessee's books

C. $20,000 on the lessor's books

D. $18,000 on the lessor's books

Q10) Farm Co. leased equipment to Union Co. on July 1, 20X4, and properly recorded the sales-type lease at $135,000, the present value of the lease payments discounted at 10%. The first of eight annual lease payments of $20,000 due at the beginning of each year was received and recorded on July 3, 20X4. Farm had purchased the equipment for $110,000. What amount of interest revenue from the lease should Farm report in its 20X4 income statement?

A. $0

B. $5,500

C. $5,750

D. $6,750