An entity is a dealer in equipment and uses leases to facilitate the sale of its product. The entity expects a 12% return. At the end of the lease term, the equipment will revert to the lessor. On January 1, 2016, an equipment is leased to a tessee with the following information: Cost of equipment to the entity Fair value of equipment Residual value - unguaranteed 3,500,000 5,500,000 600,000 200,000 900,000 8 years 12% Initial direct cost Annual rental payable in advance Useful life and lease term Implicit interest rate PV of 1 at 12% for 8 periods PV of an ordinary annuity of 1 at 12% for 8 periods PV of an annuity due of 1 at 12% for 8 periods First lease payment 17) 0.40 4.97 5.56 January 1, 2016 What is the gross investment in the lease? a. 7,800,000 b. 7,200,000 C. 6,600,000 d. 6,900,000 What is the net investment in the lease? 18) a. 5,004,000 b. 5,244,000 C. 5,500,000 d. 5,740,000 What is the total financial revenue? 19) a. 2,196,000 b. 2,796,000 Ç. 2,556,000 d. 1,956,000 What amount should be recognized as interest income for 2016? 20) a. 600,480 b. 492,480 C. 536,760 d. 521,280 What amount of cost of goods sold should be recognızed in 21) recording the lease? a. 3,260,000 b. 3,500,000 C. 3,740,000 d. 3,460,000

An entity is a dealer in equipment and uses leases to facilitate the sale of its product. The entity expects a 12% return. At the end of the lease term, the equipment will revert to the lessor. On January 1, 2016, an equipment is leased to a tessee with the following information: Cost of equipment to the entity Fair value of equipment Residual value - unguaranteed 3,500,000 5,500,000 600,000 200,000 900,000 8 years 12% Initial direct cost Annual rental payable in advance Useful life and lease term Implicit interest rate PV of 1 at 12% for 8 periods PV of an ordinary annuity of 1 at 12% for 8 periods PV of an annuity due of 1 at 12% for 8 periods First lease payment 17) 0.40 4.97 5.56 January 1, 2016 What is the gross investment in the lease? a. 7,800,000 b. 7,200,000 C. 6,600,000 d. 6,900,000 What is the net investment in the lease? 18) a. 5,004,000 b. 5,244,000 C. 5,500,000 d. 5,740,000 What is the total financial revenue? 19) a. 2,196,000 b. 2,796,000 Ç. 2,556,000 d. 1,956,000 What amount should be recognized as interest income for 2016? 20) a. 600,480 b. 492,480 C. 536,760 d. 521,280 What amount of cost of goods sold should be recognızed in 21) recording the lease? a. 3,260,000 b. 3,500,000 C. 3,740,000 d. 3,460,000

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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