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     35.     If Olsen’s records this lease as a direct financing lease, what amount would be recorded as Lease Receivable at the inception of the lease?
          a.     $543,244.
          b.     $1,350,966.
          c.     $1,400,000.
          d.     $1,629,732.

     36.     If Liu accounts for the lease as an operating lease, what expenses will be recorded as a consequence of the lease during the fiscal year ended December 31, 2004?
          a.     Depreciation Expense
          b.     Rent Expense
          c.     Interest Expense
          d.     Depreciation Expense and Interest Expense

     37.     Which of the following lease-related revenue and expense items would be recorded by Olsen if the lease is accounted for as an operating lease?
          a.     Rental Revenue
          b.     Interest Income
          c.     Depreciation Expense
          d.     Rental Revenue and Depreciation Expense

     38.     If the present value of the future lease payments is $1,400,000 at January 1, 2004, what is the amount of the reduction in the lease liability for Liu Corp. in the second full year of the lease if Liu Corp. accounts for the lease as a capital lease? (Rounded to the nearest dollar.)
          a.     $403,244.
          b.     $431,244.
          c.     $443,568.
          d.     $465,746.

Use the following information for questions 39 through 43.

Dark Co. purchases land and constructs a service station and car wash for a total of $675,000. At January 2, 2003, when construction is completed, the facility and land on which it was constructed are sold to a major oil company for $750,000 and immediately leased from the oil company by Dark. Fair value of the land at time of the sale was $75,000. The lease is a 10-year, noncancelable lease. Dark 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 Dark at termination of the lease. A partial amortization schedule for this lease is as follows:
           Payments           Interest          Amortization      Balance     
     Jan. 2, 2003                    $750,000.00
     Dec. 31, 2003     $122,058.99     $75,000.00     $47,058.99     702,941.01
     Dec. 31, 2004     122,058.99     70,294.10     51,764.89     651,176.12
     Dec. 31, 2005     122,058.99     65,117.61     56,941.38     594,234.74

     39.     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

     40.     What is the discount rate implicit in the amortization schedule presented above?
          a.     12%
          b.     10%
          c.     8%
          d.     6%

     41.     The total lease-related expenses recognized by the lessee during 2004 is which of the following? (Rounded to the nearest dollar.)
          a.     $120,000.
          b.     $122,059.
          c.     $137,794.
          d.     $115,294.

     42.     What is the amount of the lessee's liability to the lessor after the December 31, 2005 payment? (Rounded to the nearest dollar.)
          a.     $750,000.
          b.     $702,941.
          c.     $651,176.
          d.     $594,235.

     *43.     The total lease-related income recognized by the lessee during 2004 is which of the following?
          a.     $ -0-.
          b.     $5,000.
          c.     $7,500.
          d.     $75,000.

     *44.     On June 30, 2004, Fred sold equipment to an unaffiliated company for $500,000. The equipment had a book value of $450,000 and a remaining useful life of 10 years. That same day, Fred leased back the equipment at $5,000 per month for 5 years with no option to renew the lease or repurchase the equipment. Fred's rent expense for this equipment for the year ended December 31, 2004, should be
          a.     $60,000.
          b.     $30,000.
          c.     $25,000.
          d.     $20,000.

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