Question
QUESTION 3 Use the information below to answer questions 3, 4, and 5 On December 31, 2020, Gold Inc. signed a lease with Silver Leasing
QUESTION 3
Use the information below to answer questions 3, 4, and 5
On December 31, 2020, Gold Inc. signed a lease with Silver Leasing Co. for Olympic medal-making equipment having a seven-year useful life. The lease payments are made by Gold annually, beginning at the signing date. The title does not transfer to the lessee, so the equipment will be returned to the lessor on December 31, 2026. There is no purchase option, and Gold Inc guarantees a residual value to the lessor on termination of the lease.
Reagan's lease amortization schedule appears below:
Dec. 31 |
Payments |
Interest | Decrease in Balance | Outstanding Balance |
| |||||||||
2020 |
|
|
|
|
|
|
|
|
| $ | 519,115 |
| ||
2020 | $ | 90,000 |
|
|
|
| $ | 90,000 |
|
| 429,115 |
| ||
2021 | $ | 90,000 |
| $ | 17,165 |
|
| 72,835 |
|
| 356,280 |
| ||
2022 | $ | 90,000 |
|
| 14,251 |
|
| 75,749 |
|
| 280,531 |
| ||
2023 | $ | 90,000 |
|
| 11,221 |
|
| 78,779 |
|
| 201,752 |
| ||
2024 | $ | 90,000 |
|
| 8,070 |
|
| 81,930 |
|
| 119,822 |
| ||
2025 | $ | 90,000 |
|
| 4,793 |
|
| 85,207 |
|
| 34,615 |
| ||
2026 | $ | 36,000 |
|
| 1,385 |
|
| 34,615 |
|
| 0 |
| ||
In this situation, Gold:
is the lessee in a sales-type lease. | ||
is the lessee in a finance lease. | ||
is the lessor in a finance lease. | ||
is the lessor in a sales-type lease.
|
3 points
QUESTION 4
What is the balance of the lease liability on Gold's December 31, 2024, balance sheet?
$280,531. | ||
$190,530. | ||
$119,822
| ||
$356,280. |
3 points
QUESTION 5
At what amount would Gold record the right-of-use asset at the beginning of the agreement?
$519,115. | ||
$429,115. | ||
$540,000.
| ||
It is not recorded as a right of use asset |
3 points
QUESTION 6
Which of the following statements characterizes an operating lease?
The lessee reports cash outflows as financing activities.
| ||
The lessor records depreciation and lease revenue. | ||
The lessor transfers title at the end of the lease term.
| ||
The lessee has an option to purchase the leased assets and is reasonably sure to exercise the option. |
2 points
QUESTION 7
When a finance lease is first recorded at the beginning of the lease, the lessee will debit:
Right-of-use asset. | ||
Rent expense. | ||
Lease expense.
| ||
Lease receivable. |
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