Assume That Souse Agrees to Lease a New Machine from LAIRD

question 24

Multiple Choice

Assume that Souse agrees to lease a new machine from LAIRD on January 1,2011,for $40,000 per year,paid in advance (i.e.,at the beginning of the year) .Executory costs are $1,000.The lease term is 11 years and the asset's useful life is 10 years.There is no bargain purchase option.The guaranteed residual value is $10,000.Which statement is correct?

• A)The executor costs will be included in the minimum lease payments.
• B)The guaranteed residual will be excluded in the minimum lease payments.
• C)This is an operating lease because there is no bargain purchase option.
• D)This is a finance lease since the lease term is for most of the economic life of the asset.

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Definitions:

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