^{Question 1 Part A and B}

A. On January 1, 2018, Wellburn Corporation leased an asset from Tabitha Company. The asset originally cost Tabitha $390,000. The lease agreement is an operating lease that calls for four annual payments beginning on January 1, 2018, in the amount of $39,000. The other three remaining payments will be made on January 1 of each subsequent year. Which of the following journal entries should Tabitha record on January 1, 2018?

Multiple Choice

• Cash	39,000
  Rent revenue		39,000

• Cash	39,000
  Deferred rent revenue		39,000

• Cash	39,000
  Rent expense		39,000

• Cash	39,000
  Lease receivable		39,000

B. Refer to the following lease amortization schedule. The 10 payments are made annually starting with the beginning of the lease. Title does not transfer to the lessee and there is no purchase option or guaranteed residual value. The asset has an expected economic life of 12 years. The lease is noncancelable.

Payment		Cash Payment		Effective Interest		Decrease in balance		Outstanding Balance
								90,938
1		13,000		0		13,000		77,938
2		13,000		7,014		5,986		71,953
3		13,000		6,476		6,524		65,428
4		13,000		5,889		7,111		58,317
5		13,000		5,249		7,751		50,565
6		13,000		4,551		8,449		42,116
7		13,000		3,790		9,210		32,907
8		13,000		2,962		10,038		22,868
9		13,000		?		?		?
10		13,000		?		?		?

What is the effective annual interest rate? (Round final answer to the nearest whole percentage.)

Multiple Choice

• 6%.

• 11%.

• 9%.

• 7%.