Neal Corp. entered into a nine-year capital lease on a warehouse on December 31, 2016. Lease payments of $52,000, which includes real estate taxes of $2,000, are due annually, beginning on December 31, 2017, and every December 31 thereafter. Neal does not know the interest rate implicit in the lease; Neal’s incremental borrowing rate is 9%. The rounded present value of an ordinary annuity for nine years at 9% is 6.0. What amount should Neal report as capitalized lease liability at December 31, 2016? a. $300,000 b. $312,000 c. $450,000 d. $468,000

Neal Corp. entered into a nine-year capital lease on a warehouse on December 31, 2016. Lease payments of $52,000, which includes real estate taxes of $2,000, are due annually, beginning on December 31, 2017, and every December 31 thereafter. Neal does not know the interest rate implicit in the lease; Neal’s incremental borrowing rate is 9%. The rounded present value of an ordinary annuity for nine years at 9% is 6.0. What amount should Neal report as capitalized lease liability at December 31, 2016? a. $300,000 b. $312,000 c. $450,000 d. $468,000

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter5: Introduction To Business Expenses

Section: Chapter Questions

Problem 61P

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Concept explainers

Leasing

Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.

Question

Neal Corp. entered into a nine-year capital lease on a warehouse on December 31, 2016. Lease payments of
$52,000, which includes real estate taxes of $2,000, are due annually, beginning on December 31, 2017, and
every December 31 thereafter. Neal does not know the interest rate implicit in the lease; Neal’s incremental
borrowing rate is 9%. The rounded present value of an ordinary annuity for nine years at 9% is 6.0. What
amount should Neal report as capitalized lease liability at December 31, 2016?
a. $300,000
b. $312,000
c. $450,000
d. $468,000

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On December 30, 2005, Bart, Inc. purchased a machine from Fell Corp. in exchange for a non-interest bearing note requiring eight payments of $20,000. The first payment was made on December 30, 2005, and the others are due annually on December 30. At the date of issuance, the prevailing rate of interest for this type of note was 11%. Present value factors are as follows: Period The present value of an ordinary annuity of 1 at 11% The present value of the annuity in advance of 1 at 11% 7 4.712 5.231 8 5.146 5.712 On Bart's December 31, 2005 balance sheet, the note payable to Fell was $114,240 $104,620 $94,240 $102,920
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