Porter Corporation
NOTE: the Following Multiple Choice Questions Require

question 18

Multiple Choice

Porter Corporation
NOTE: The following multiple choice questions require present value information.
On January 1, 2012, Porter Corporation signed a five-year noncancelable lease for certain machinery. The terms of the lease called for:
$\begin{array}{|l|lcc|} \hline \text {1) } & \text {Price to make amual payments of \( \$ 60,000 \) at the end of each year (starting on Dec. \( \quad 31,2012 \) ) for five years. Porter must return } & \text { }\\&\text { the equipment to the lessor end of this period.}\\\hline \text {2) } & \text { The machinery has an estimated useful life of 6 years and no expected salvage value. } & \text { }\\\hline \text {3) } & \text {Porter usesthe straight-line method of depreciation for all of its fixed assets. } & \text { }\\ \hline\text {4) } & \text { Porter's incremental borrowing rate is \( 8 \% \) . } & \text { }\\\hline \text {5) } & \text {The fair value of the asset at Januaty 1,2012 is \( \$ 275,000 \) . } & \text { }\\\hline\end{array}$
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Under which of the following conditions does the equipment lease qualify for capital lease accounting?

• A) The lease does not contain a bargain purchase option.
• B) The lease term is equal to or greater than 75% of the asset's economic life.
• C) The lease term is equal to or greater than 90% of the asset's economic life.
• D) The lease does not transfer ownership to the lessee at the end of the lease term.

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