practice test 10

practice test 10 - Identify the letter of the choice that...

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Identify the letter of the choice that best completes the statement or answers the question. 1. Carlton Co. manufactures equipment that is sold or leased. On December 31, 20X1, Carlton leased equipment to Acme for a five-year period ending December 31, 20X6, at which date ownership of the leased asset will be transferred to Acme. Equal payments under the lease are $66,000 (including $6,000 executory costs) and are due on December 31 of each year. The first payment was made on December 31, 20X1. Collectibility of the remaining lease payments is reasonably assured, and Carlton has no material cost uncertainties. The normal sales price of the equipment is $231,000, and cost is $180,000. For the year ended December 31, 20X1, what amount of income should Carlton realize from the lease transaction? a. $51,000. b. $66,000. c. $69,000. d. $99,000. ANSWER: A 2. In a lease that is recorded as a sales-type lease by the lessor, interest revenue a. should be recognized in full as revenue at th b. should be recognized over the period of the line method. c. should be recognized over the period of the interest method. d. does NOT arise. ANSWER: C
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3. On January 2, 20X1, Hernandez, Inc. signed a ten- year noncancelable lease for a heavy duty drill press. The lease stipulated annual payments of $70,000 starting at the end of the first year, with title passing to Hernandez at the expiration of the lease. Hernandez treated this transaction as a capital lease. The drill press has an estimated useful life of 15 years, with no salvage value. Hernandez uses straight-line depreciation for all of its plant assets. Aggregate lease payments were determined to have a present value of $420,000, based on implicit interest of 10%. In its 20X1 income statement, what amount of depreciation expense should Hernandez report from this lease transaction? a. $70,000. b. $46,667. c. $42,000. d. $28,000. ANSWER: D 4. On December 31, 20X1, Sanford, Inc. leased machinery with a fair value of $420,000 from Cey Rentals Co. The agreement is a six-year noncancelable lease requiring annual payments of $80,000 beginning December 31, 20X1. The lease is appropriately accounted for by Sanford as a capital lease. Sanford's incremental borrowing rate is 11%. Sanford knows the interest
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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, 20X1 balance sheet, Sanford should report a lease liability of a. $303,264. b. $340,000. c. $375,672. d. $383,264. ANSWER: A 5. A lessee had a ten-year capital lease requiring equal annual payments. The reduction of the lease liability in year 2 should equal a. the current liability shown for the lease at th b. the current liability shown for the lease at th c. the reduction of the lease obligation in year d. one-tenth of the original lease liability. ANSWER:
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This note was uploaded on 11/30/2011 for the course ACC 101 taught by Professor B during the Spring '09 term at CUNY Baruch.

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practice test 10 - Identify the letter of the choice that...

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