1. A lease qualifies as a capital lease for both lessee and lessor. The lessee's interest rate is 5%, the lessor's interest rate is 6%. Both lessee and lessor are aware of the other's rate. Indicate the rate to be used to account for the lease by the lessee and lessor, respectively

Select one: a. lessee 5%, lessor 5% b. lessee 6%, lessor 5% c. lessee 5%, lessor 6% d. lessee 6%, lessor 6%

2. On January 1, 2016, The Hammel Company (lessee) entered into a five-year, noncancelable lease for a machine with payments of $25,981.62 due each January 1. The first payment is due January 1, 2016. The McMillan Company (lessor) has a 10% interest rate known by Hammel.

Other data:

McMillan's 12/31/16 Lease Payment Receivable is:

Select one:

a. $73,420

b. $83,620

c. $74,018

d. $76,018

e. $68,416

3. Assume a $100 cash dividend is declared; 70% of the dividend is a liquidating dividend. Indicate the change in Dividends Payable and Additional Paid-in-Capital, respectively.

Select one:

a. Decrease $70, Decrease $100

b. Decrease $30, Decrease $100

c. Increase $100, Decrease $70

d. Decrease $30, Decrease $30

e. Increase $70, Decrease $70

Fair Value and Book Value of machine: S100 000 Property Taxes included in annual S25, 981.62 payments: S2,000 No renewal options. No salvage value. Straight-line depreciation used by both lessee and lessor Economic life of the asset is 5 years