Reference no: EM133141639

Questions -

Q1. Roarie Enterprises leased restaurant equipment from Omega leasing. Omega earns interest under such arrangements at a 10% annual rate. The lease term is seven months with monthly payments of $30,000 due at the end of each month. Roarie Enterprises elects the short-term lease option. What is the next effect of the lease on Roarie Enterprises's earnings during the seven-month term (ignore taxes)?

A. An initial expense of $160,000.

B. An expense of $30,000 initially and $30,000 at the end of 6 months.

C. An expense of $30,000 at the end of each after 7 months.

D. Total expense of $210,000 allocated between amortization expense and interest expense.

Q2. Mira Co. Recorded a right of use asset of $870,000 in a 10-year finance lease. The interest rate charged by the lessor was 10%. The balance in the right of use asset for after two years will be

A. $704,700.

B. $696,000.

C. $873,625.

D. $1,030,225.

Q3. For the lessee to account for a lease as a finance lease, the lease must meet:

A. All five of the criteria specified by GAAP regarding accounting for leases.

B. Any one of the six criteria specified by GAAP regarding accounting for leases.

C. Any two of the criteria specified by GAAP regarding accounting for leases.

D. Any one of the five criteria specified by GAAP regarding accounting for leases.

Q4. On July 1, 2021, Raddow Industries leased equipment from Jones Co. in a finance lease. The present value of the lease payment discounted at 8% was $61,600. Ten annual lease payments of $8,500 are due each year beginning July 1, 2021. Jones Co. had constructed equipment recently for $53,500, and its retail fair value was $61,600. The total decrease in earnings (pretax) in Raddow's December 31, 2021, income statement would be (ignore taxes):

A. $6,376.

B. $4,928.

C. $5,204.

D. $2,124.