QUESTION 4 Billy Joe Company leases a machine from Bobby Sue Corp. under an agreement which meets the criteria to be a finance lease for Billy Joe. The six-year lease requires payment of $116,000 at the beginning of each year. The incremental borrowing rate for the lessee is 10%; the lessor's implicit rate is 8% and is known by the lessee. The present value of an annuity due of 1 for six years at 10% is 4.79079. The present value of an annuity due of 1 for six years at 8% is 4.99271. Billy Joe should record a Right-Of-Use Asset at inception for: O $679,008. O$651,548. O $579,154. O$555,732. QUESTION 5 On January 1, 2015, Cape Cod Corporation signed a five-year noncancelable lease for equipment. The terms of the lease called for Cape Cod to make annual payments of $150,000 at the beginning of each year for five years with the title passing to Cape Cod at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Cape Cod uses the straight-line method of depreciation for all of its fixed assets. Cape Cod appropriately accounts for this lease transaction as a finance lease. The lease payments were determined to have a present value of $625,479 at an effective interest rate of 1096. In 2016, Cape Cod should record interest expense of $32.547. $37,303. O $47,548. O $52.302.
QUESTION 4 Billy Joe Company leases a machine from Bobby Sue Corp. under an agreement which meets the criteria to be a finance lease for Billy Joe. The six-year lease requires payment of $116,000 at the beginning of each year. The incremental borrowing rate for the lessee is 10%; the lessor's implicit rate is 8% and is known by the lessee. The present value of an annuity due of 1 for six years at 10% is 4.79079. The present value of an annuity due of 1 for six years at 8% is 4.99271. Billy Joe should record a Right-Of-Use Asset at inception for: O $679,008. O$651,548. O $579,154. O$555,732. QUESTION 5 On January 1, 2015, Cape Cod Corporation signed a five-year noncancelable lease for equipment. The terms of the lease called for Cape Cod to make annual payments of $150,000 at the beginning of each year for five years with the title passing to Cape Cod at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Cape Cod uses the straight-line method of depreciation for all of its fixed assets. Cape Cod appropriately accounts for this lease transaction as a finance lease. The lease payments were determined to have a present value of $625,479 at an effective interest rate of 1096. In 2016, Cape Cod should record interest expense of $32.547. $37,303. O $47,548. O $52.302.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:QUESTION 4
Billy Joe Company leases a machine from Bobby Sue Corp. under an agreement which meets the criteria to be a finance lease for Billy Joe.
The six-year lease requires payment of $116,000 at the beginning of each year.
The incremental borrowing rate for the lessee is 10%; the lessor's implicit rate is 8% and is known by the lessee.
The present value of an annuity due of 1 for six years at 10% is 4.79079. The present value of an annuity due of 1 for six years at 8% is 4.99271. Billy Joe should record a Right-Of-Use Asset at inception for:
O $679,008.
O $651,548.
O $579,154.
O $555,732.
QUESTION 5
On January 1, 2015, Cape Cod Corporation signed a five-year noncancelable lease for equipment. The terms of the lease called for Cape Cod to make annual payments of $150,000 at the beginning of each year for five
years with the title passing to Cape Cod at the end of this period.
The equipment has an estimated useful life of 7 years and no salvage value. Cape Cod uses the straight-line method of depreciation for all of its fixed assets. Cape Cod appropriately accounts for this lease transaction as
a finance lease.
The lease payments were determined to have a present value of $625,479 at an effective interest rate of 10%.
In 2016, Cape Cod should record interest expense of
$32,547.
O $37,303.
O $47,548.
O $52,302.
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