At the Beginning of the Year,a Firm Leased Equipment on a Capital

question 17

Multiple Choice

At the beginning of the year,a firm leased equipment on a capital lease,capitalizing $60,000 in both its lease liability and leased assets accounts.The contract calls for December 31 payments of $15,000.The lessee's annual reporting period ends December 31 and the contract reflects 10% interest.The lessee made the first payment as required.The direct method statement of cash flows for the lessee should reflect which of the following in the first year of the lease contract (ignore noncash disclosures) ?

• A) $15,000 financing cash outflow
• B) $15,000 operating cash outflow
• C) $6,000 operating cash outflow;$9,000 financing cash outflow
• D) $9,000 financing cash outflow

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Definitions:

Cash Paid

The total amount of cash outlay by a company during a specific period for expenses, acquisitions, or investments.

Semiannual Interest

The payment of interest on a loan or bond twice a year.

Bond Interest Expense

The cost incurred by an issuer of bonds for the interest payments made to bondholders.

Cash

Liquid assets held by a company or person, used for transactions or as a store of value.