1. Marne Company purchased a machine for leasing purposes on January 1, 2020, for $1,000,000. On March 1, 2020, Marne leased the machine to Dal Company for $130,000 a year for a five-year period ending December 31, 2024, at which time, the machine reverts to Marne. Dal Company estimates the machines useful life to be 10 years. Dal does not guarantee a residual value of the machine at lease-end. Dal paid $130,000 to Marne on January 2, 2020, the first annual lease payment. Dal is not aware of the implicit rate of the lease, but Dals incremental borrowing rate is 5%.

What was the lease expense recognized by Dal Company for the year ended December 31, 2020? Show me your work

a. $130,000

c. $118,195

d. $100,000

2. Marne Company purchased a machine for leasing purposes on January 1, 2020, for $1,000,000. On March 1, 2020, Marne leased the machine to Dal Company for $130,000 a year for a five-year period ending December 31, 2024, at which time, the machine reverts to Marne. Dal Company estimates the machines useful life to be 10 years. Dal does not guarantee a residual value of the machine at lease-end. Dal paid $130,000 to Marne on January 2, 2020, the first annual lease payment. Dal is not aware of the implicit rate of the lease, but Dals incremental borrowing rate is 5%.

What was the deduction to the Right-of-Use Asset account in 2020 for Dal Company?

a. $106,951

b. $100,451

c. $130,000

3. Marne Company purchased a machine for leasing purposes on January 1, 2020, for $1,000,000. The machine has a 10-year life, has no residual value, and will be depreciated on a straight-line basis. On January 2, 2020, Marne leased the machine to Dal Company for $130,000 a year for a five-year period ending December 31, 2024, at which time, the machine reverts to Marne. Dal does not guarantee a residual value of the machine at lease-end, although Marne does plan to lease the equipment to Dal (or another company) for an additional 5 years. Dal paid $130,000 to Marne on January 2, 2020, the first annual payment date.

How would Marne Company and Dal Company classify the lease, considering a 5% implicit interest rate for both parties?

a. b. c. d