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BIF 201-3: Financial Accounting and Reporting III

BIF 201-3: Financial Accounting and Reporting III

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On January 1, 20X0, a company leases equipment for 8 years although the equipment has a life of 10 years. At the end of that time, title to this property will be conveyed to the lessee. Payments are $10,000 per year on January 1 with the first one made immediately. The present value of these payments at the lessee's incremental borrowing rate of 10 percent per year is assumed to be $58,000. What amount of depreciation expense should the lessee recognize for 20X0? F

The Richmond Car Company buys cars and then sells them at 20 percent above that cost. On January 1, 20X0, the company buys a car for $40,000 and leases it to a customer for six annual payments of $10,000 each. For convenience, assume that this amount includes interest at exactly 10 percent per year. The car is expected to have a life of six years with no residual value. The first payment is made immediately. What is the 20X0 increase in income for Richmond Car Company as a result of this lease contract? F

On June 1 of the current year, a company entered into a real estate lease agreement for a new building. The lease is an operating lease and is fully executed on that day. According to the terms of the lease, payments of $28,900 per month are scheduled to begin on October 1 of the current year and to continue each month thereafter for a total of 56 months. The lease term spans five years. The company has a calendar year-end. What amount is the company's lease expense for the current calendar year? F

Under ASC 842, at lease commencement, a lessee's initial Right-of-Use Asset would include? C

Present value of lease payments plus estimated residual value

❌

Present value of lease payments plus initial direct costs

✅

Present value of lease payments only

❌

Fair value of the leased asset

❌

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Larkins, Inc. leases equipment from Bostic for $30,000 per year for three years. The contract is signed on Dec 31, 20X0 and the first payment is made immediately. The second payment will be made on Dec 31, 20X1. This lease contract does not meet any of the five criteria for a finance lease.

Larkins has an incremental borrowing rate of 10 percent. The present value factor for a $1 ordinary annuity at 10% for 2 years is 1.736 and for 3 years the factor is 2.487. What liability should Larkins report on its December 31, 20X1 balance sheet? F

A lease requires 6 annual payments of $8,000 starting immediately. At 5%:

PV factor for ordinary annuity of 6 years is 5.076

PV factor for annuity due of 6 years is 5.330

Initial direct costs are $2,000. What is the lessee's initial right-of-use asset? C

On December 31, Year One, the Kulwicki Company signs a lease contract to use a machine that requires payment of $400,000 today and payment of $1.3 million in the future. Assume the contract is properly classified as an operating lease. The first payment is made. On a year-end balance sheet, what liability does the company report? F

Present value of $1.7 million

Zero

❌

Present value of $1.3 million

$1.3 million

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A company leases a machine on January 1, Year One for five years which calls for annual payments of $10,000 per year beginning on January 1, Year One. The present value of these payments based on a reasonable interest rate of 10 percent is assumed to be $42,000. This lease is an operating lease. How much expense will the company recognize for Year One? F

On January 1, 2022, a lessee enters into a three-year asset operating lease

with annual payments of $36,000 per year. The first payment will be made December 31 and the interest rate implicit in the lease is 5.75 percent. (The present value of an ordinary annuity for three years at 5.75% is 2.68. and present value of annuity due for 3 years at 5.75% is3.362). What amount will lessee record as Lease Expense for 2022? B

In a sales-type lease, the lessor recognizes? C

Only interest income over lease term

Equal portions of profit and interest income over lease term