+ X Course Course * Course Course * Course Course * Course * Course * Course * Course * Course Course (PDF) 20 X *Home . .. C File | C:/Users/maggi/Downloads/2023-04-23%2021-22.pdf to Import favorites Express VPN Series McAfee Security LastPass password... M Gmail YouTube Maps + of 5| 2 | ED Q 69 Draw | Read aloud TROJECT . . . WORK ALONE! MULTIPLE CHOICE: For each of the following questions, circle the BEST answer. 1. Initial direct costs incurred by a Lessor for a sales-type lease with gross profit should be recognized_ for a long-term operating lease should be recognized _and a. evenly over the life of the lease; completely in the first year of the lease b. evenly over the life of the lease; evenly over the life of the lease c. completely when the sale is recorded; evenly over the life of the lease. d. completely when the sale is recorded; completely in the first year of the lease e. similar to interest expense which decreases over time; completely in the first year of the lease O 2. On the lessee's books to initially record a finance lease, the guaranteed residual value should be: a. included in the lease liability account at present value b. included in the lease liability account at future value c. included in the lease liability account only to the extent that guaranteed residual value is expected to exceed estimated residual value d.. excluded from the lease liability account 3. On December 31, Year 1, F Corporation enters into a 10-year finance lease with the first payment made on that day and other annual payments of $20,000 due each Dec. 31 thereafter. The equipment's life is 10 years and the interest rate implicit in the lease is 10%. The finance lease liability was recorded on December 31, + Year 1 at $135,000 and then immediately followed by an entry to record the first $20,000 payment. When F Corp. prepares its Dec. 31, Year 1 Balance Sheet, how much of the Lease Liability should be included in the current liabilities section? a. $ 6,500 b. $ 8,500 c. $11,500 d. $20,000 4. H Company is a lessee who enters into a 5-year lease for equipment on January 1 of the current year. The useful life of the asset is 8 years. The lease contains a bargain purchase option. Should H depreciate this equipment on its books, and if so, how many years should it depreciate it over? a. No, it should not depreciate the asset-lessor will depreciate it on their books b. Yes, depreciate it over 5 years o c. Yes, depreciate it over 8 yearsCourse Course Course * Course * Course * Course * Course Course * Course Course * Course Course (PDF) 20 X *Home + X C File | C:/Users/maggi/Downloads/2023-04-23%2021-22.pdf . . . to Import favorites Express VPN Series McAfee Security LastPass password... M Gmail YouTube Maps Draw Read aloud + 2 of 5 2 0 Q 69 b. Yes, depreciate it over 5 years c. Yes, depreciate it over 8 years 5. D Company, a lessee, enters into a 10-year lease arrangement to lease machinery. The equipment is expected to have an estimated life of 10 years. Annual lease payments of $10,000 are payable at the end of each year. D knows that the lessor expects a 10% rate of return. D has a 12% incremental borrowing rate. What rate should D use to determine the amount to record in the Lease Liability account? a. 10% b. 12% C. 11% d. none; this is a special operating lease so there would no interest component. o 6. J Company rents machinery from Z Company for 7 months for a fee of $400 per month which will be paid at the end of each month. What type of expense(s) will J Company show on its current-year Income Statement in regard to this rental agreement? a. Interest Expense b. Lease Expense c. Interest Expense and Amortization Expense d. Interest Expense and Depreciation Expense + PROBLEM #1A: On Dec. 31, Year 1, Lessee Inc. leases equipment from Lessor Corp. for an 8-year lease term for $28,000 annual amounts to be paid at the beginning of each year. The lease is noncancelable. The useful life of the equipment is 10 years. The equipment will be returned to Lessor Corp. at the end of the 8 years. The equipment is not specialized, so could be leased out to someone else at the end of this lease. The guaranteed residual value of the equipment at the end of 8 years is $20,000. However, the Lessee expects the residual value of the equipment to only be $18,500 at the end of 8 years. The cost of the equipment to the Lessor was $170,000 and at the beginning of the lease has a fair value of $195,000. The Lessor's implicit interest rate in o the lease is 9% and this interest rate is known by the Lessee. Initial direct costs (legal fees) paid by the