On January 1, 2021, a company signs a 25-year lease for land. Annual payments of $20,000 begin on December 31, 2021

On January 1, 2021, a company signs a 25-year lease for land. Annual payments of $20,000 begin on December 31, 2021. The company's normal borrowing rate is 6%. For what amount would the company record the lease on January 1, 2021 (rounded to nearest whole dollar)? Use (PV of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Do not round interest rate factors.)

A) $255,667.

B) $440,463.

C) $500,000.

D) $244,333.

Answer: A

On July 1, 2021, a company signs a 30-month lease for an office building. Lease payments of $6,457 are due every three months (10 payments total), beginning on October 1, 2021. The company's normal borrowing rate is 8% (2% every three months). For what amount would the company record the lease on July 1, 2021 (rounded to nearest whole dollar)? Use (PV of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Do not round interest rate factors.)

A) $62,000.

B) $58,001.

C) $64,570.

D) $43,327.

Answer: B

Term bonds are:

A) Bonds issued below the face amount.

B) Bonds that mature in installments.

C) Bonds that mature all at once.

D) Bonds issued above the face amount.

Answer: C

In computing the present value of the minimum lease payments, the lessee should

In computing the present value of the minimum lease payments, the lessee should

a. use its incremental borrowing rate in all cases.
b. use either its incremental borrowing rate or the implicit rate of the lessor, whichever is higher, assuming that the implicit rate is known to the lessee.
c. use either its incremental borrowing rate or the implicit rate of the lessor, whichever is lower, assuming that the implicit rate is known to the lessee.
d. None of these answers are correct.


Answer: use either its incremental borrowing rate or the implicit rate of the lessor, whichever is lower, assuming that the implicit rate is known to the lessee

In computing depreciation of a leased asset, the lessee should subtract

a. a guaranteed residual value and depreciate over the term of the lease.
b. an unguaranteed residual value and depreciate over the term of the lease.
c. a guaranteed residual value and depreciate over the life of the asset.
d. an unguaranteed residual value and depreciate over the life of the asset.


Answer: a guaranteed residual value and depreciate over the term of the lease

Lessees prefer to account for their leases as operating lease because:

a. it increases their debt to total equity ratio.
b. it decreases the income tax expense.
c. it increases the amount of total assets.
d. it decreases the amount of liability reported.


Answer: it decreases the amount of liability reported