lease specifies that ownership of the asset transfers to llu life of the asset is greater than or equal to 75% of the D) The lease contains a bargain purchase option. o) Initial direct costs are capitalized 2 with A) a direct-finance lease B) an operating lease C) a sales-type lease D) an installment lease as part of the lease receivable If a capital lease contains a bargain purchase 21) depreciation period that is used by the A) the useful life option, the lessee for the asset is B) the same period used by the lessor D) the statutory life for all assets in that class C) the lease term 22) Swanson Corporation is leasing a machine from Gray, Inc. Swanson's incremental borrowing rate is 13%. The prime rate interest is currently 7%. Gray's implicit rate in the lease is 9%; Swanson knows this rate. At what interest rate should the minimum I ease payments be computed? A) 7% B) 9% C) 11% D) 1390 23) On January 1 of the current year, Stephens Corporation leased machinery from Montgomery Company. The machine originally cost Montgomery $277,000. The lease agreement is an operating lease, the terms of which call for five annual payments of $34,000. The first payment is due at the inception of the lease; the other four payments are due on January 1 of subsequent years. What journal entry should Stephens make on January 1 of the current year? A) 34,000 34,000 Rent Expense Cash