A company is leasing equipment for five years for an annual payment of $10,000. With an interest rate of 6%, this provides a present value of $42,124. The total cost of the equipment is $40,000, and there is no residual value. Should the company record this as a finance lease under the present value test? O Yes, because the present value plus cost of equipment exceeds total annual payments. O Yes, because the present value exceeds the total cost of equipment. O No, because the present value plus cost of equipment exceeds total annual payments. O No, because the present value exceeds the total cost of equipment.

A company is leasing equipment for five years for an annual payment of $10,000. With an interest rate of 6%, this provides a present value of $42,124. The total cost of the equipment is $40,000, and there is no residual value. Should the company record this as a finance lease under the present value test? O Yes, because the present value plus cost of equipment exceeds total annual payments. O Yes, because the present value exceeds the total cost of equipment. O No, because the present value plus cost of equipment exceeds total annual payments. O No, because the present value exceeds the total cost of equipment.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Can you help me with this problem with step by step explanation, please?
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