Danville Corporation buys a truck for $52,000 and leases it to Viceroy for 8 years. At the end of that time, Viceroy can buy the truck for $7,000 in cash. Which of the following is not true? a. If this purchase option is viewed as a bargain, Danville should record the $7,000 as a future cash flow in accounting for the lease even though it is not guaranteed. b. Unless the purchase option is viewed as a bargain, Danville cannot account for this lease as a capital lease. c. The purchase option cannot be viewed as a bargain unless it is significantly below the expected fair value of the truck on that date. d. If this purchase option is viewed as a bargain, Danville's profit to be recognized in the first year will be increased.
Danville Corporation buys a truck for $52,000 and leases it to Viceroy for 8 years. At the end of that time, Viceroy can buy the truck for $7,000 in cash. Which of the following is not true? a. If this purchase option is viewed as a bargain, Danville should record the $7,000 as a future cash flow in accounting for the lease even though it is not guaranteed. b. Unless the purchase option is viewed as a bargain, Danville cannot account for this lease as a capital lease. c. The purchase option cannot be viewed as a bargain unless it is significantly below the expected fair value of the truck on that date. d. If this purchase option is viewed as a bargain, Danville's profit to be recognized in the first year will be increased.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Danville Corporation buys a truck for $52,000 and leases it to Viceroy
for 8 years. At the end of that time, Viceroy can buy the truck for
$7,000 in cash. Which of the following is not true?
a. If this purchase option is viewed as a bargain, Danville should
record the $7,000 as a future cash flow in accounting for the lease
even though it is not guaranteed.
b. Unless the purchase option is viewed as a bargain, Danville cannot
account for this lease as a capital lease.
c. The purchase option cannot be viewed as a bargain unless it is
significantly below the expected fair value of the truck on that date.
d. If this purchase option is viewed as a bargain, Danville's profit to be
recognized in the first year will be increased.
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