Question
Use the following to answer questions 10 through 13: Montana Inc. sells computer systems. Montana leases computers to Utah Company on June 30, 2021. The
Use the following to answer questions 10 through 13:
Montana Inc. sells computer systems. Montana leases computers to Utah Company on June 30,
2021. The co
mputers cost Montana $12 million to manufacture. The lease is non
-
cancelable and
has the following terms:
Lease payments: $2,466,754 semiannually; first payment due June 30, 2021; remaining
payments due December 31 and June 30 each year through December
31, 2025.
Lease term: 5 years (10 semi
-
annual payments).
No residual value; no bargain purchase option.
Economic life of equipment: 5 years.
Implicit interest rate and lessee's incremental borrowing rate: 10% per year.
Fair value of the computers at June
30, 20
21
: $20 million.
Collectability of the rental payments is reasonably assured, and there are no lessor costs yet to be
incurred.
_____ 10.
Montana would account for this lease as:
A)
A finance lease.
B)
A sales type lease without selling profit.
C)
A sales type lease with selling profit.
D)
An operating lease.
_____ 11.
Utah
Company would account for this lease as:
A)
A finance lease.
B)
A sales type lease without selling profit.
C)
A sales type lease with selling profit.
D)
An operating lease.
_____ 12.
The lease
payable balance
on Utah's books after the December 31, 2021 payment is
closest to:
A)
$15,943,154
B)
$17,533,246
C)
$21,000,000
D)
$15,066,492
_____ 13.
Total interest revenue Montana would report on its year end December 31, 2021 i
ncome
statement relative to this lease is closest to:
A)
$4,933,508
B)
$1,673,820
C)
$876,662
D)
$2,466,754
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