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     67.     If Marly records this lease as a direct-financing lease, what amount would be recorded as Lease Receivable at the inception of the lease?
a.     $155,213
b.     $385,991
c.     $400,000
d.     $465,638

     68.     Which of the following lease-related revenue and expense items would be recorded by Marly 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

     69.     Sele Company leased equipment to Snead Company on July 1, 2007, for a one-year period expiring June 30, 2008, for $60,000 a month. On July 1, 2008, Sele leased this piece of equipment to Quirk Company for a three-year period expiring June 30, 2011, for $75,000 a month. The original cost of the equipment was $4,800,000. The equipment, which has been continually on lease since July 1, 2003, is being depreciated on a straight-line basis over an eight-year period with no salvage value. Assuming that both the lease to Snead and the lease to Quirk are appropriately recorded as operating leases for accounting purposes, what is the amount of income (expense) before income taxes that each would record as a result of the above facts for the year ended December 31, 2008?
      Sele       Snead       Quirk     
a.     $210,000     $(360,000)     $(450,000)
b.     $210,000     $(360,000)     $(750,000)
c.     $810,000     $(60,000)     $(150,000)
d.     $810,000     $(660,000)     $(450,000)

Use the following information for questions 70 and 71.
Eddy leased equipment to Hoyle Company on May 1, 2008. At that time the collectibility of the minimum lease payments was not reasonably predictable. The lease expires on May 1, 2009. Hoyle could have bought the equipment from Eddy for $3,200,000 instead of leasing it. Eddy's accounting records showed a book value for the equipment on May 1, 2008, of $2,800,000. Eddy's depreciation on the equipment in 2008 was $360,000. During 2008, Hoyle paid $720,000 in rentals to Eddy for the 8-month period. Eddy incurred maintenance and other related costs under the terms of the lease of $64,000 in 2008. After the lease with Hoyle expires, Eddy will lease the equipment to another company for two years.

     70.     Ignoring income taxes, the amount of expense incurred by Hoyle from this lease for the year ended December 31, 2008, should be
a.     $296,000.
b.     $360,000.
c.     $656,000.
d.     $720,000.

     71.     The income before income taxes derived by Eddy from this lease for the year ended December 31, 2008, should be
a.     $296,000.
b.     $360,000.
c.     $656,000.
d.     $720,000.

     72.     Hite Company has a machine with a cost of $400,000 which also is its fair market value on the date the machine is leased to Rich Company. The lease is for 6 years and the machine is estimated to have an unguaranteed residual value of $40,000. If the lessor's interest rate implicit in the lease is 12%, the six beginning-of-the-year lease payments would be

a.     $92,361.
b.     $82,465.
c.     $78,180.
d.     $66,667.

     73.     Estes Co. leased a machine to Dains Co. Assume the lease payments were made on the basis that the residual value was guaranteed and Estes gets to recognize all the profits, and at the end of the lease term, before the lessee transfers the asset to the lessor, the leased asset and obligation accounts have the following balances:
Leased equipment under capital lease     $400,000
Less accumulated depreciation--capital lease      384,000
     $ 16,000
Interest payable     $ 1,520
Obligations under capital leases      14,480
     $16,000
If, at the end of the lease, the fair market value of the residual value is $8,800, what gain or loss should Estes record?
a.     $6,480 gain
b.     $7,120 loss
c.     $7,200 loss
d.     $8,800 gain

     74.     Durham Company leased machinery to Santi Company on July 1, 2008, for a ten-year period expiring June 30, 2018. Equal annual payments under the lease are $75,000 and are due on July 1 of each year. The first payment was made on July 1, 2008. The rate of interest used by Durham and Santi is 9%. The cash selling price of the machinery is $525,000 and the cost of the machinery on Durham's accounting records was $465,000. Assuming that the lease is appropriately recorded as a sale for accounting purposes by Durham, what amount of interest revenue would Durham record for the year ended December 31, 2008?
a.     $47,250
b.     $40,500
c.     $20,250
d.     $0

     75.     Eby Company leased equipment to the Mills Company on July 1, 2008, for a ten-year period expiring June 30, 2018. Equal annual payments under the lease are $80,000 and are due on July 1 of each year. The first payment was made on July 1, 2008. The rate of interest contemplated by Eby and Mills is 9%. The cash selling price of the equipment is $560,000 and the cost of the equipment on Eby's accounting records was $496,000. Assuming that the lease is appropriately recorded as a sale for accounting purposes by Eby, what is the amount of profit on the sale and the interest revenue that Eby would record for the year ended December 31, 2008?
a.     $64,000 and $50,400
b.     $64,000 and $43,200
c.     $64,000 and $21,600
d.     $0 and $0



Use the following information for questions 76 and 77.

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.

     76.     Assuming that Foran, Inc. uses straight-line depreciation, what is the amount of deprecia-tion 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

     77.     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

     78.     Mayer Company leased equipment from Lennon Company on July 1, 2008, for an eight-year period expiring June 30, 2016. Equal annual payments under the lease are $300,000 and are due on July 1 of each year. The first payment was made on July 1, 2008. The rate of interest contemplated by Mayer and Lennon is 8%. The cash selling price of the equipment is $1,861,875 and the cost of the equipment on Lennon's accounting records was $1,650,000. Assuming that the lease is appropriately recorded as a sale for accounting purposes by Lennon, what is the amount of profit on the sale and the interest income that Lennon would record for the year ended December 31, 2008?
a.     $0 and $0
b.     $0 and $62,475
c.     $211,875 and $62,475
d.     $211,875 and $74,475

Use the following information for questions 79 through 83.
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
     79.     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

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

     81.     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

     82.     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

     *83.     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

     *84.     On June 30, 2008, Colt sold equipment to an unaffiliated company for $700,000. The equipment had a book value of $630,000 and a remaining useful life of 10 years. That same day, Colt leased back the equipment at $7,000 per month for 5 years with no option to renew the lease or repurchase the equipment. Colt's rent expense for this equipment for the year ended December 31, 2008, should be
a.     $84,000.
b.     $42,000.
c.     $35,000.
d.     $28,000.

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