A+ Answers of the following Questions

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use the following information for the following two questions.

Risen Company, a dealer in machinery and equipment, leased equipment to Foran, Inc., on July 1, 2008. The lease is appropriately accounted for as a sale by Risen and as a purchase by Foran.  The lease is for a 10-year period (the useful life of the asset) expiring June 30, 2018. The first of 10 equal annual payments of $621,000 was made on July 1, 2008. Risen had purchased the equipment for $3,900,000 on January 1, 2008, and established a list selling price of $5,400,000 on the equipment. Assume that the present value at July 1, 2008, of the rent payments over the lease term discounted at 8% (the appropriate interest rate) was $4,500,000.

1. Assuming that Foran, Inc. uses straight-line depreciation, what is the amount of depreciation and interest expense that Foran should record for the year ended December 31, 2008?

a. $225,000 and $155,160

b. $225,000 and $180,000

c. $270,000 and $155,160

d. $270,000 and $180,000                           

2. What is the amount of profit on the sale and the amount of interest income that Risen should record for the year ended December 31, 2008?

a. $0 and $155,160

b. $600,000 and $155,160

c. $600,000 and $180,000

d. $900,000 and $360,000

3. On December 31, 2008, Dodd Corporation leased a plane from  Aero Company for an eight-year period expiring December 30, 2016. Equal annual payments of $150,000 are due on December 31 of each year, beginning with December 31, 2008. The lease is properly classified as a capital lease on Dodd’s books. The present value at December 31, 2008 of the eight lease payments over the lease term discounted at 10% is $880,264. Assuming the first payment is made on time, the amount that should be reported by Dodd Corporation as the lease liability on its December 31, 2008 balance sheet is

a. $880,264.

b. $818,290.

c. $792,238.

d. $730,264.

use the following information for the following five questions.

Bohl Co. purchases land and constructs a service station and car wash for a total of $360,000. At January 2, 2007, when construction is completed, the facility and land on which it was constructed are sold to a major oil company for $400,000 and immediately leased from the oil company by Bohl. Fair value of the land at time of the sale was $40,000. The lease is a 10-year, noncancelable lease. Bohl uses straight-line depreciation for its other various business holdings.  The economic life of the facility is 15 years with zero salvage value. Title to the facility and land will pass to Bohl at termination of the lease. A partial amortization schedule for this lease is as follows:

                               Payments                             Interest                            Amortization         Balance            

               Jan. 2, 2007                                                     $400,000.00

               Dec. 31, 2007     $65,098.13          $40,000.00          $25,098.13          374,901.87

               Dec. 31, 2008     65,098.13            37,490.19            27,607.94            347,293.93

               Dec. 31, 2009     65,098.13            34,729.39            30,368.74            316,925.19

              

1. From the viewpoint of the lessor, what type of lease is involved above?

a. Sales-type lease

b. Sale-leaseback

c. Direct-financing lease

d. Operating lease

              

2. What is the discount rate implicit in the amortization schedule presented above?

a. 12%

b. 10%

c. 8%

d. 6%

3. The total lease-related expenses recognized by the lessee during 2008 is which of the following?  (Rounded to the nearest dollar.)

a. $64,000

b. $65,098

c. $73,490

d. $61,490

              

4. What is the amount of the lessee's liability to the lessor after the December 31, 2009 payment?  (Rounded to the nearest dollar.)

a. $400,000

b. $374,902

c. $347,294

d. $316,925

5. The total lease-related income recognized by the lessee during 2008 is which of the following?

a. $ -0-

b. $2,667

c. $4,000

d. $40,000

 

1. The term used for bonds that are unsecured as to principal is
a. junk bonds.
b. debenture bonds.
c. indebenture bonds.
d. callable bonds


2. If bonds are issued initially at a premium and the effective-interest method of amortization is used, interest expense in the earlier years will be
a. greater than if the straight-line method were used.
b. greater than the amount of the interest payments.
C the same as if the straight-line method were used.
d. less than if the straight-line method were used.


3. If bonds are issued between interest dates, the entry on the books of the issuing corporation could include a
a. debit to Interest Payable.
b. credit to Interest Receivable.
c. credit to Interest Expense.
d. credit to Unearned Interest.


 

Use the following information for the following two questions:

Cox Co. issued $100,000 of ten-year, 10% bonds that pay interest semiannually.  The bonds are sold to yield 8%.

1. One step in calculating the issue price of the bonds is to multiply the principal by the table value for

a. 10 periods and 10% from the present value of 1 table.

b. 20 periods and 5% from the present value of 1 table.

c. 10 periods and 8% from the present value of 1 table.

d. 20 periods and 4% from the present value of 1 table.

2. Another step in calculating the issue price of the bonds is to

a. multiply $10,000 by the table value for 10 periods and 10% from the present value of an annuity table.

b. multiply $10,000 by the table value for 20 periods and 5% from the present value of an annuity table.

c. multiply $10,000 by the table value for 20 periods and 4% from the present value of an annuity table.

d. none of these.

3. Treasury bonds should be shown on the balance sheet as

a. an asset.

b. a deduction from bonds payable issued to arrive at net bonds payable and outstanding.

c. a reduction of stockholders' equity.

d. both an asset and a liability.

1. Discount on Notes Payable is charged to interest expense

a. equally over the life of the note.

b. only in the year the note is issued.

c. using the effective-interest method.

d. only in the year the note matures.

2. Norton Co. was organized on January 2, 2007, with 500,000 authorized shares of $10 par value common stock.  During 2007, Norton had the following capital transactions:

January 5—issued 375,000 shares at $14 per share.

July 27—purchased 25,000 shares at $11 per share.

November 25—sold 15,000 shares of treasury stock at $13 per share.

Norton used the cost method to record the purchase of the treasury shares. What would be the balance in the Paid-in Capital from Treasury Stock account at December 31, 2007?

a. $0.

b. $15,000.

c. $30,000.

d. $45,000.

3. Palmer Corp. owned 20,000 shares of Dixon Corp. purchased in 2003 for $240,000. On December 15, 2006, Palmer declared a property dividend of all of its Dixon Corp. shares on the basis of one share of Dixon for every 10 shares of Palmer common stock held by its stockholders. The property dividend was distributed on January 15, 2007. On the declaration date, the aggregate market price of the Dixon shares held by Palmer was $400,000. The entry to record the declaration of the dividend would include a debit to Retained Earnings of

a. $0.

b. $160,000.

c. $240,000.

 

d. $400,000.

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