Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

More Books

Students also viewed these Accounting questions

Question

What community placements are available for practica?

Answered: 1 week ago

Question

Recognize the various roles and competencies of an HRD professional

Answered: 1 week ago

Question

Define human resource development (HRD)

Answered: 1 week ago