Lease Paper 1

1

Howell Corporation, a publicly traded corporation, is the lessee in a leasing agreement with Brandon, Inc. to lease land and a building. If the lease contains a bargain purchase option, Howell should record the land and the building as a(n)






2

Plantation Restaurant should treat the lease agreement with Cutter Electronics as a(n)






3

Plantation Restaurant should treat the lease agreement with Cutter Electronics as a(n)






4

Which of the following statements about a capital lease is false?






5

If a company uses off-balance-sheet financing, assets have been acquired






6

Which one of the following statements with respect to leases is correct?






7

Fact Pattern:
Neary Company has entered into a contract to lease computers from Baldwin Company starting on January 1, Year 1. Relevant information pertaining to the lease is provided below.
Lease term 4 Years
Useful life of computers 5 Years
Present value of future lease payments 100,000
Fair value of leased asset on date of lease 105,000
Baldwin’s implicit rate 10%
At the end of the lease term, ownership of the asset transfers from Baldwin to Neary. Neary has properly n line depreciation o-classified this lease as a capital lease on its financial statements and uses straightcomparable assets.
At January 1, Year 1, the lease would be reported on Neary’s books as a(n)






8

Fact Pattern:
Neary Company has entered into a contract to lease computers from Baldwin Company starting on January 1, Year 1. Relevant information pertaining to the lease is provided below.
Lease term 4 Years
Useful life of computers 5 Years
Present value of future lease payments 100,000
Fair value of leased asset on date of lease 105,000
Baldwin’s implicit rate 10%
At the end of the lease term, ownership of the asset transfers from Baldwin to Neary. Neary has properly n line depreciation o-classified this lease as a capital lease on its financial statements and uses straightcomparable assets.
What is the annual depreciation expense that Neary will record on the leased computers?






9

On January 1, Rosewater Company leased a computer for 4 years at a monthly rent of $80, payable at the end of each month. Due to the rate of technical change, the computer is expected to become obsolete within 5 years. At the inception of the lease, the computer was retailing for $3,450. Had Rosewater chosen to purchase the computer instead of leasing it, they could have borrowed the funds at 10%. At a 10% interest rate, the present value of the lease payments is $3,154. Rosewater does not know the rate implicit in the lease. For the month of January, Rosewater should report (to the closest dollar) interest expense of






10

Keller Corporation signed a 3-year lease for an automobile on December 1. The automobile had a list price of $17,000 and an estimated useful life of 8 years. The lease called for payments of $500 per month for 36 months. The present value of the $500 payments was $15,054 at Keller’s incremental borrowing rate and $15,496 at the lessor’s implicit rate, which is known to the lessee. Based on the above information, Keller should record the lease as a(n)






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