A company leases a machine on January 1, Year One forfive years which calls for annual payments of $4,000 forthe first year and then $10,000 per year after that. Thepresent value of these payments based on a reasonableinterest rate of 10 percent is assumed to be $38,000. Thislease is an operating lease. How much expense will thecompany recognize for Year One?a. $4,000b. $7,600c. $8,800d. $11,400

Step 1:To determine the amount of expense recognized for Year One, we need to follow the principles…

Answered: A company leases a machine on January…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 1P

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Owens Company leased equipment for 4 years at 50,000 a year with an option to renew the lease for 6 years at 2,000 per month or to purchase the equipment for 25,000 (a price considerably less than the expected fair value) after the initial lease term of 4 years. Why would this lease qualify as a finance lease?
On August 1, 2019, Kern Company leased a machine to Day Company for a 6-year period requiring payments of 10,000 at the beginning of each year. The machine cost 40,000 and has a useful life of 8 years with no residual value. Kerns implicit interest rate is 10%, and present value factors are as follows: Present value for an annuity due of 1 at 10% for 6 periods4.791 Present value for an annuity due of 1 at 10% for 8 periods5.868 Kern appropriately recorded the lease as a sales-type lease. At the inception of the lease, the Lease Receivable account balance should be: a. 60,000 b. 58,680 c. 48,000 d. 47,910
On January 1, Lessee Company leases equipment with a useful life of 5 years for a 6-year lease term. Payments of $88,000 are due at the beginning of each year. The incremental borrowing rate is 4%. The present value of the payments is $407,440. Which of the following is true? Interest expense at the end of the first year is $407,440 x .04 Amortization expense at the end of the first year is $407,440 divided by 6. Lease expense at the end of the first year is $88,000. Interest expense at the end of the first year is $319,440 x .04
Jenny Enterprises has Just entered a lease agreement for a new manufacturing facility. Under the terms of the agreement, the company agreed to pay rent of $17,500 per month for the next 8 years with the first payment due today. If the APR is 7.68 percent compounded monthly, what is the value of the payments today? a. $1,315,406.27 b. $1,252,274.08 c. $1,145,716.94 d. $1,260,288.63 e. $1,221,588.29
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An asset with a cost of $80,000 is leased on 1/1/x1. The lease is a sales-type lease for the lessor. Six annual lease payments are due on December 31 beginning on 12/31/x1. The asset will have no residual value. The lessor sets a rate of return of 8% and charges the lessee annual lease payments of $20,550. Present value factor of an ordinary annuity for six years at 8% 4.62288 Present value factor of an annuity due for six years at 8% 4.99271 Present value factor of a single sum for a six-year term at 8% .63017 In the journal entry at the inception of the lease under the gross method, what amount does the lessor credit to unearned interest? Group of answer choices A. $28,300 D. $43,300 B. $95,000 C. $123,300
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A company signs a lease acquiring the right to use property for five years. Lease payments of $17156.31 are to be made annually at the end of this year and the next four years. The discount, or interest, rate is 8 percent per year. (Use factor table in Appendix B for calculation) Required 1: What is the present value of the lease payments? $ Required 2: In the first payment, what is the amount of interest cancelled? $ Required 3: In the second payment, what is the amount of lease paid net of interest? $ Required 4: In the last payment, what is the amount of interest cancelled? $ Required 5: Assume the lease contract has the option to buy the property for the present value of the remaining payments plus $50,000. If the company decides to buy the property at the end of the third year immediately before the third payment, how much it must pay in dollars at the end of period 3? $
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ABC Inc. leases equipment for 10 years. The annual lease payment is $8,000. The interest rate for a 10-year collateralized loan for ABC is 8%. Which of the following is correct? I The expenses related to the lease in year 1 will be greater if the lease is accounted for as a finance lease than if the lease is accounted for as an operating lease. II The total expenses over the 10-year life of the lease if the lease is accounted for as a finance lease will equal the total expenses over the 10-year life of the lease if the lease is accounted for as an operating lease. III The company will record interest expense if the lease is accounted for as a finance lease but not if the lease is accounted for as an operating lease. Select one: a. I, II and III b. I and II c. I and III d. II and III e. I

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