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3. Alt Corporation enters into an agreement with Yates Rentals Co. on January 1, 2018 for the purpose of leasing a machine to be used
3. Alt Corporation enters into an agreement with Yates Rentals Co. on January 1, 2018 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement: (a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $574,864 are due on January 1 of each year. (b) The fair value of the machine on January 1, 2018, is $1,600,000. The machine has a remaining economic life of 10 years, with no salvage value. The machine reverts to the lessor upon the termination of the lease. (c) Alt depreciates all machinery it owns on a straight-line basis. Alt's incremental borrowing rate is 10% per year. Alt does not have knowledge of the 8% implicit rate used by Yates. (e) Immediately after signing the lease, Yates finds out that Alt Corp. is the defendant in a suit which is sufficiently material to make collectibility of future lease payments doubtful. What type of lease is this from Alt Corporation's viewpoint? A) Sales-type lease B) Direct-financing lease C) Finance lease D) Operating lease 4. Which of the following best describes current practice in accounting for leases? A) All leases are capitalized. B) Leases are not capitalized. C) All long-term leases are capitalized. D) Leases similar to installment purchases are capitalized. 5. The following information pertains to Hopson Co.'s pension plan: Actuarial estimate of projected benefit obligation at 1/1/18 $82,000 Assumed discount rate 10% Service costs for 2018 $23,000 Pension benefits paid during 2018 $15,000 If no change in actuarial estimates occurred during 2018, Hopson's projected benefit obligation at December 31, 2018 was A) $98,200. B) $113,200. C) $90,200. D) $90,000
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