1-) Jarvis Company leased a new machine beginning on January 1, year 8. The lease, which has an implicit interest rate of 6%, is for 5 years and requires annual payments of $10,000 on each December 31. The 5-year lease term is considered a major part of the economic life of 6 years. The present value of an ordinary annuity of $1 at 6% for 5 periods is 4.212. Title to the machine remains with the lessor. The machine, which cost the lessor $30,000, has a useful life of 6 years and and will be depreciated by the lessor and amortized by the lessee on a straight-line basis. What will be the carrying value of the machine at December 31, year 9?
$28,080 on the lessee’s books
$18,000 on the lessor’s books
$20,000 on the lessor’s books
$25,272 on the lessee’s books

2-) Hammaker Manufacturing Corp. began operations in year 1 and reported taxable net income of $10 million and $4 million in year 1 and year 2, respectively. In year 3, Hammaker reports a net operating loss (NOL) of $16 million. The tax rate for the years year 1 and year 2 is 35%, but the enacted tax rate for year 3 and later years will be 21%. As part of year-end adjusting entries, what total tax benefit will Hammaker record as a result of the year 3 NOL?

$5,320,000

$4,340,000

$5,600,000

$3,360,000

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3-)

On May 1 of the current year, Cassandra Corp. issued $600,000 of 4% bonds payable at par with interest payment dates of April 1 and October 1. In its income statement for the current year ended December 31, what amount of interest expense should Cassandra report?

$16,000

$14,000

$4,000

$10,000

4-) Access the FASB’s Codification Research System® at the FASB website (www.fasb.org). Determine the specific seven-digit (XXX-XX-XX) or eight-digit Codification citation (XXX-XX-XX-X) for accounting for each of the following items:

Required:
1. Definition of initial direct costs.
2. When a modification to a contract is reported as a separate contract (that is, separate from the original contract).
3. The disclosures required in the notes to the financial statements for a lessor.
4. The classification criteria for when a lessee classifies a lease as a finance lease and a lessor classifies a lease as a sales-type lease.
  

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