Question
A lease signed on January 1, 2020 was correctly classified as operational by the lessee. The Annual Rent Payment is $ 5,260.67. The Right of
A lease signed on January 1, 2020 was correctly classified as operational by the lessee. The Annual Rent Payment is $ 5,260.67. The Right of Use Asset (ROUA) recognized at the beginning of the contract was $ 10,000. In 2020, the lessee recognized a ROUA amortization expense of $ 5,000 and an interest expense under the effective interest method of $ 521.33. Based on this information Select one:
a. The data is not sufficient to determine the effect on 2020 Net Income.
b. Renter's Net Income for 2020 is underestimated.
c. Renter's Net Income for 2020 is overestimated.
d. Renter's Net Income for 2020 is correct.
When the lesses computes the present value of the rent payments, this Select one:
a. use the "implicit interest rate" for all cases.
b. use the lower of the incremental borrowing rate and the "implicit interest rate" as long as you know both.
c. use the higher of the incremental borrowing rate and the "implicit interest rate", as long as you know both.
d. use the implicit interest rate if you know it, otherwise use the incremental borrowing rate.
On January 1, 2020, Lessor Inc., a manufacturer of machinery and equipment, leased equipment with a fair value of $ 300,000 to Lessee, Inc.The lessor correctly classified the lease as direct financing and recognized a deferred gross profit ) of $ 80,000. The implicit rate that the lessor charged the lessee is 11%, and the lessee knows it. What is the effect on the financial statements if as of December 31, 2020, the lessor prepared the journal entries with the amortization table under the effective interest method using only the 11% interest rate? Select one:
a. Net income will be underestimated.
b. The interest income will be overestimated.
c. The cost of the goods sold will be underestimated.
d. It cannot be determined with these data.
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