Exhibit 21-5 the Chicago, Inc - Refer to Exhibit 21-5

question 93

Multiple Choice

Exhibit 21-5 The Chicago, Inc.entered into a five-year lease with the Urbana Company on January 1, 2010.Chicago, the lessor, will require that five equal annual payments of $25, 000 be made at the beginning of each year.The first payment will be made on January 1, 2010.The lease contains a bargain purchase option price of $12, 000, which the lessee may exercise on December 31, 2014.The lessee pays all executory costs.The cost of the leased property and its normal selling price are $95, 000 and $118, 236, respectively.Collectibility of the future lease payments is reasonably assured, and the lessor does not expect to incur any future costs related to the lease.Present value factors for a 7% interest rate are as follows:
$\begin{array}{llr} \text { Present value of \( \$ 1 \) for \( n=1 \) } &0.934579\\ \text { Present value of \( \$ 1 \) for \( n=5 \) } &0.712986\\ \text { Present value of an ordinary annuity for \( n=5 \) } &4.100197\\ \text { Present value of an annuity due for \( n=5 \) } &4.387211\\\end{array}$



- Refer to Exhibit 21-5.If Chicago requires a 7% annual return, what is the correct amount of interest revenue to be recognized by Chicago for 2010? (Round the answer to the nearest dollar.)

• A)$7, 774
• B)$7, 175
• C)$6, 527
• D)$5, 928

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Definitions:

Paid

The status of a financial obligation that has been fulfilled, indicating that no debt remains.

Year

A period of time consisting of 365 days, or 366 in a leap year, used as a basic unit of time to measure durations and align calendars.

Accumulated Depreciation

Accumulated depreciation accounts for the total amount of depreciation expense that has been claimed over the life of an asset, reducing its book value.

Balance Sheet

A report that lists a business's assets, obligations, and the equity of its shareholders on a specific date.