QUESTION 4 Billy Joe Company leases a machine from Bobby Sue Corp. under an agreement which meets the criteria to be a finance lease for Billy Joe. The six-year lease requires payment of $116,000 at the beginning of each year. The incremental borrowing rate for the lessee is 10%; the lessor's implicit rate is 8% and is known by the lessee. The present value of an annuity due of 1 for six years at 1096 is 4.79079. The present value of an annuity due of 1 for six years at 896 is 4.99271. Billy Joe should record a Right-Of-Use Asset at inception for: O $679,008. $651,548. $579,154. $555,732. QUESTION 5 On January 1, 2015, Cape Cod Corporation signed a five-year noncancelable lease for equipment. The terms of the lease called for Cape Cod to make annual payments of $150,000 at the beginning of each year for five years with the title passing to Cape Cod at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Cape Cod uses the straight-line method of depreciation for all of its fixed assets. Cape Cod appropriately accounts for this lease transaction as a finance lease. The lease payments were determined to have a present value of $625,479 at an effective interest rate of 1096. In 2016, Cape Cod should record interest expense of $32,547. $37,303 $47,548. $52.302. QUESTION 6 On January 1, 2018, Ogleby Corporation signed a five-year noncancelable lease for equipment. The terms of the lease called for Ogleby to make annual payments of $180,000 at the beginning of each year for five years with title passing to Ogleby at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Ogleby uses the straight-line method of depreciation for all of its fixed assets. Ogleby accordingly accounts for this lease transaction as a finance lease. The lease payments were determined to have a present value of $750,578 at an effective interest rate of 1096. With respect to this lease, for 2018 Ogleby should record rent expense of $180,000. interest expense of $57,058 and amortization expense of $150,116. interest expense of $57,058 and amortization expense of $107,225. interest expense of $90,000 and amortization expense of $181.956. QUESTION 7 Alt-Ctrl-Delete Corporation enters into an agreement with Yates Rentals Co. on January 1, 2015 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 $287,432 are due on January 1 of each year. The residual value is unguaranteed and greater than zero. (b)The fair value of the machine on January 1, 2015, is $800,000. 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-Ctrl-Delete depreciates all machinery it owns on a straight-line basis. (d)Alt-Ctrl-Delete's incremental borrowing rate is 10% per year. Alt-Ctrl-Delete does not have knowledge of the 896 implicit rate used by Yates. What type of lease is this from Alt-Ctrl-Delete Corporation's viewpoint? Operating lease Finance lease Sales-type lease Direct-financing lease
