1. A capital lease begins on 1/1/16. Failure to record the 1/1/16 and 12/31/16 lessor entries for a direct financing, ordinary annuity lease would have what effect on the lessor's 2016 Gross Profit and 2016 Interest Revenue, respectively?

Select one: a. No Error, No Error b. No Error, Understated c. No Error, Overstated d. Understated, No Error e. Understated, Understated

2. If the lease in a sale-leaseback transaction meets one of the four leasing criteria and is therefore accounted for as a capital lease, who includes the leased asset on its books and which party records interest expense during the lease period?

Select one:

a. Leased Asset on the Seller-lessee's books, Interest Expense on the Purchaser-lessor's books

b. Leased Asset on the Purchaser-lessor's books, Interest Expense on the Seller-lessee's books

c. Leased Asset on the Purchaser-lessor's books, Interest Expense on the Purchaser-lessor's books

d. Leased Asset on the Seller-lessee's books, Interest Expense on the Seller-lessee's books

3. Long Beach, Inc., a lessor, charges Applewood Corp., a lessee, a $10,000 nonrefundable fee to enter into a four-year operating lease. The lease is effective on July 1, 2015. It requires an annual rental of $27,500, paid in monthly installments. In Applewood's income statement for the year ended June 30, 2016, rent expense should be

Select one:

a. $32,500

b. $30,000

c. $27,500

d. $40,000

e. $26,400