28" On January 1, Year 1, Frost Co. entered into a two-year lease agreement with Ananz Co. to lease 10 new computers. The lease term begins on January 1, Year 1, and ends on December 31, Year 2. The lease agreement requires Frost to pay Ananz two annual lease payments of $8,000. The present value of the minimum lease payments is $13,000. Which of the following circumstances would require Frost to classify and account for the arrangement as a finance lease under U.S. GAAP? The economic life of the computers is three years. The fair value of the computers on January 1, Year 1 is $14,000. Frost does not have the option of purchasing the computers at the end of the lease term Ownership of the computers remains with Ananz throughout the lease term and after the lease ends 2 # 3 e 44 $ 755 % hp 0. 16 6 & 87 t y 0 * 00 6 O 49 50 42 = 43 44 45 46 47 When a firm issues compensatory stock options to an employee and the options expire, the correct accounting treatment is to: O Recognize all remaining compensation expense. O Record no journal entry. O Reclassify the additional paid-in capital accounts to reflect the expired stock options. Adjust the common stock account for unused shares. 129"> @ # c hp Oll O 6 1 $ 44 % 5 A 8 Peg Co. leased equipment from Howe Corp. on July 1, Year 1, for an eight-year period expiring June 30, Year 9. Equal payments under the lease are $600,000 and are due on July 1 of each year. The first payment was made on July 1, Year 1. The rate of interest contemplated by Peg and Howe is 10 percent. The cash selling price of the equipment is $3.520,000, and the cost of the equipment on Howe's accounting records is $2,800,000. The lease is appropriately recorded as a sales-type (finance) lease. What is the amount of profit on the sale and interest revenue that Howe should record for the year ended December 31, Year 17 Profit on Sale Interest Revenue 431 Watts Inc. enters into an agreement to lease a printer/copier from Jennings Co. The lease is for three years and does not stipulate an ownership transfer or contain a written option to purchase. The printer/copier has a five-year lide and the equipment is standard equipment that Jennings can use for many projects and functions. The net present value of the lease payments is approximately half of the overall fair value of the equipment and there is no guaranteed residual value associated with the lease. Watts and Jennings will account for this lease as Watts Jennings O Finance Sales-type 0 Finance Operating Operating Sales-type 432"> At the beginning of Year 10, the fair value of plan assets and the projected benefit obligation for the PBX Co. pension plan were $890,000 and $720,000, respectively. An unrecognized actuarial loss at the beginning of Year 10 was equal to $85,000. If the average remaining service life of PBX employees is 10 years, the amount of amortization that will be included in Year 10 net periodic pension cost will be closest to: $0 O $1,300 O $4,000 O $8,500 09 133" 49 50 43 44 45 46 47 48 On January 2 of the current year, Cole Co. signed an eight-year noncancelable lease for a new machine, requiring $15,000 annual payments at the beginning of each year. The machine has a useful life of 12 years, with no salvage value. Tite passes to Cole at the lease expiration date. Cole use straight-line depreciation for all of its plant assets Aggregate lease payments have a present value on January 2 of $108,000, based on an appropriate rate of interest For the current year. Cole should record depreciation (amortization) expense for the leased machine at $0 $9,000 O $13,500 84100