Multiple Choice Question 80 Alt Corporation (the lessee) enters into an agreement with Yates Rentals Co. (the lessor) on January 1, 2018 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 $574,864 are due on January 1 of each year. (b) The fair value of the machine on January 1, 2018, is $1,600,000. 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 depreciates all machinery it owns on a straight-line basis. (d) Alt's incremental borrowing rate is 10% per year. Alt does not have knowledge of the 8% implicit rate used by Yates. (e) Immediately after signing the lease, Yates finds out that Alt Corp. is the defendant in a suit which is sufficiently material to make collectibility of future lease payments doubtful. Period 1 2 3 Future Value of Ordinary Annuity of 1 5% 6% 8% 10% 1.00000 1.00000 1.00000 1.00000 2.05000 2.06000 2.08000 2.10000 3.15250 3.18360 3.24640 3.31000 4.31013 4.37462 4.50611 4.64100 5.52563 5.63709 5.86660 6.10510 6.80191 6.97532 7.33592 7.71561 8.14201 8.39384 8.92280 9.48717 9.54911 9.89747 10.63663 11.43589 11.02656 11.49132 12.48756 13.57948 12.57789 13.18079 14.48656 15.93743 12% 1.00000 2.12000 3.37440 4.77933 6.35285 8.11519 4 5 6 7 10.08901 12.29969 8 9 14.77566 10 17.54874 Present Value of an Annuity Due of 1 6% 8% 10% Period 5% 12% 1 1.00000 1.00000 1.00000 1.00000 1.00000 2 1.95238 1.94340 1.90909 1.89286 1.92593 2.78326 3 2.85941 2.83339 2.73554 2.69005 4 3.72325 3.67301 3.57710 3.48685 3.40183 5 4.54595 4.31213 4.16986 4.03735 4.46511 5.21236 6 5.32948 4.99271 4.79079 4.60478 7 6.07569 5.91732 5.62288 5.35526 5.11141 8 6.78637 6.58238 6.20637 5.86842 5.56376 9 7.20979 6.74664 6.33493 5.96764 7.46321 8.10782 10 7.80169 7.24689 6.75902 6.32825 Which of the following lease-related revenue and expense items would be recorded by Yates if the lease is accounted for as an operating lease? Rent Revenue and Depreciation Expense Depreciation Expense only Rent Revenue only Interest Revenue only