1.

The Herbertson Company leases machines to clients. Annual rentals are paid each year, with the first payment due on the day the lease begins. A machine with a book value of $10,000 is leased. Unguaranteed salvage value is $1,500. Lease term is five years. Herbertson's interest rate is 5%. What is the approximate annual lease payment?

Select one:

a.

$2,156.22

b.

$2,309.75

c.

$2,199.76

d.

$2,038.29

e.

$1,941.22

2.

Skor Co. leased equipment to Douglas Corp. on January 2, 2021 for a 7-year period expiring December 31, 2027. Equal payments under the lease are $600,000 and are due on January 2 of each year. The first payment was made on January 2, 2021. The cost of the equipment is $2,400,000. The lease is appropriately accounted for as a sales-type lease. The present value of the lease payments is $2,800,000. What is the effect on Sales Revenue for the year ended December 31, 2021?

Select one:

a.

$57,143

b.

$600,000

c.

$85,714

d.

$2,400,000

e.

$2,800,000

3.

In a sale-leaseback transaction, Reddy Company is the seller-lessee and Kaiser Company is the buyer-lessor. If one of the five criteria used to determine classification of the lease is met,

Select one:

a.

Reddy will record the lease as an operating lease.

b.

Reddy will record a Note Payable for the cash received from the sale

c.

If the book value of Reddy's asset is more than the cash received, Reddy records a gain.

d.

Reddy will record the lease as a finance lease.

e.

Kaiser will record the lease as an operating lease.

4.

A 12-year finance lease specifies equal minimum annual lease payments. Part of this payment represents interest and part represents a reduction in the net lease liability. Additionally, the asset is depreciated on the straight-line basis. The total combined depreciation and interest expense will:

Select one:

a.

Be the same each year

b.

Fluctuate each year depending on market interest rates

c.

Decrease each year

d.

Increase each year