Which of the following lease-related revenue and expense items would be recorded by Yates if the lease is accounted for as an operating lease? Lease Revenue and Depreciation Expense Lease Revenue only Interest Revenue only Depreciation Expense only
Which of the following lease-related revenue and expense items would be recorded by Yates if the lease is accounted for as an operating lease? Lease Revenue and Depreciation Expense Lease Revenue only Interest Revenue only Depreciation Expense only
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Alt Corporation (the lessee) enters into an agreement with Yates Rentals Co. (the lessor) on January 1, 2021 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement:
(a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $574,864 are due on January 1 of each year.
(b) The fair value of the machine on January 1, 2021, is $1,600,000. The machine has a remaining economic life of 10 years, with no salvage value. The machine reverts to the lessor upon the termination of the lease.
(c) Alt depreciates all machinery it owns on a straight-line basis.
(d) Alt’s incremental borrowing rate is 10% per year. Alt does not have knowledge of the 8% implicit rate used by Yates.
(e) Immediately after signing the lease, Yates finds out that Alt Corp. is the defendant in a suit which is sufficiently material to make collectibility of future lease payments doubtful.
Which of the following lease-related revenue and expense items would be recorded by Yates if the lease is accounted for as an operating lease?
(a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $574,864 are due on January 1 of each year.
(b) The fair value of the machine on January 1, 2021, is $1,600,000. The machine has a remaining economic life of 10 years, with no salvage value. The machine reverts to the lessor upon the termination of the lease.
(c) Alt depreciates all machinery it owns on a straight-line basis.
(d) Alt’s incremental borrowing rate is 10% per year. Alt does not have knowledge of the 8% implicit rate used by Yates.
(e) Immediately after signing the lease, Yates finds out that Alt Corp. is the defendant in a suit which is sufficiently material to make collectibility of future lease payments doubtful.
Future Value of Ordinary Annuity of 1 | |||||
Period | 5% | 6% | 8% | 10% | 12% |
1 | 1.00000 | 1.00000 | 1.00000 | 1.00000 | 1.00000 |
2 | 2.05000 | 2.06000 | 2.08000 | 2.10000 | 2.12000 |
3 | 3.15250 | 3.18360 | 3.24640 | 3.31000 | 3.37440 |
4 | 4.31013 | 4.37462 | 4.50611 | 4.64100 | 4.77933 |
5 | 5.52563 | 5.63709 | 5.86660 | 6.10510 | 6.35285 |
6 | 6.80191 | 6.97532 | 7.33592 | 7.71561 | 8.11519 |
7 | 8.14201 | 8.39384 | 8.92280 | 9.48717 | 10.08901 |
8 | 9.54911 | 9.89747 | 10.63663 | 11.43589 | 12.29969 |
9 | 11.02656 | 11.49132 | 12.48756 | 13.57948 | 14.77566 |
10 | 12.57789 | 13.18079 | 14.48656 | 15.93743 | 17.54874 |
Present Value of an Annuity Due of 1 | |||||||||||
Period | 5% | 6% | 8% | 10% | 12% | ||||||
1 | 1.00000 | 1.00000 | 1.00000 | 1.00000 | 1.00000 | ||||||
2 | 1.95238 | 1.94340 | 1.92593 | 1.90909 | 1.89286 | ||||||
3 | 2.85941 | 2.83339 | 2.78326 | 2.73554 | 2.69005 | ||||||
4 | 3.72325 | 3.67301 | 3.57710 | 3.48685 | 3.40183 | ||||||
5 | 4.54595 | 4.46511 | 4.31213 | 4.16986 | 4.03735 | ||||||
6 | 5.32948 | 5.21236 | 4.99271 | 4.79079 | 4.60478 | ||||||
7 | 6.07569 | 5.91732 | 5.62288 | 5.35526 | 5.11141 | ||||||
8 | 6.78637 | 6.58238 | 6.20637 | 5.86842 | 5.56376 | ||||||
9 | 7.46321 | 7.20979 | 6.74664 | 6.33493 | 5.96764 | ||||||
10 | 8.10782 | 7.80169 | 7.24689 | 6.75902 | 6.32825 |
Which of the following lease-related revenue and expense items would be recorded by Yates if the lease is accounted for as an operating lease?
Lease Revenue and Depreciation Expense
Lease Revenue only
Interest Revenue only
Depreciation Expense only
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