Chapter 21 ACCOUNTING FOR LEASES

Chapter 21 ACCOUNTING FOR LEASES - Chapter 21: ACCOUNTING...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 21: ACCOUNTING FOR LEASES 1. Lease A does not contain a bargain purchase option, but the lease term is equal to 90 percent of the estimated economic life of the leased property. Lease B does not transfer ownership of the property to the lessee by the end of the lease term, but the lease term is equal to 75 percent of the estimated economic life of the leased property. How should the lessee classify these leases? Lease A Lease B a. Operating lease Capital lease b. Operating lease Operating lease c. Capital lease Capital lease d. Capital lease Operating lease 2. On December 31 , 2008 , Mendez, Inc. leased machinery with a fair value of $840,000 from Cey Rentals Co. The agreement is a six- year noncancelable lease requiring annual payments of $160,000 beginning December 31 , 2008 . The lease is appropriately accounted for by Mendez as a capital lease. Mendez's incremental borrowing rate is 11%. Mendez knows the interest rate implicit in the lease payments is 10%. The present value of an annuity due of 1 for 6 years at 10% is 4.7908. The present value of an annuity due of 1 for 6 years at 11% is 4.6959. In its December 31 , 2008 balance sheet, Mendez should report a lease liability of a. $606,528. b. $680,000.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 4

Chapter 21 ACCOUNTING FOR LEASES - Chapter 21: ACCOUNTING...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online