1. Minimum lease payments may include a
a. penalty for failure to renew.
b. bargain purchase option.
c. guaranteed residual value.
d. any of these
2. The amount to be recorded as the cost of an asset under capital lease is equal to the
a. present value of the minimum lease payments.
b. present value of the minimum lease payments or the fair value of the asset, whichever is lower.
c. present value of the minimum lease payments plus the present value of any unguaranteed residual value.
d. carrying value of the asset on the lessor’s books.
3. Which of the following would not be included in the Lease Receivable account?
a. Guaranteed residual value
b. Unguaranteed residual value
c. A bargain purchase option
d. All would be included
4. Lucky Company leases a machine from Vicky Corp. under an agreement which meets the criteria to be a capital lease for Lucky. The six-year lease requires payment of $136,000 at the beginning of each year, including $20,000 per year for maintenance, insurance, and taxes. 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. Lucky should record the leased asset at
a. $679,008.
b. $651,548.
c. $579,154.
d. $555,732.
5. Mini Company is constructing a building. Construction began in 2014 and the building was completed 12/31/14. Mini made payments to the construction company of $2,000,000 on 7/1, $4,200,000 on 9/1, and $4,000,000 on 12/31. Weighted-average accumulated expenditures were
a. $2,050,000.
b. $2,400,000.
c. $6,200,000.
d. $10,200,000
6. Holly Corporation constructed a building at a cost of $20,000,000. Weighted-average accumulated expenditures were $8,000,000, actual interest was $800,000, and avoidable interest was $400,000. If the salvage value is $1,600,000, and the useful life is 40 years, depreciation expense for the first full year using the straight-line method is
a. $470,000.
b. $490,000.
c. 510,000.
d. $670,000.