Johnson Institute Leased a New Machine Having an Expected Useful

question 19

Multiple Choice

Johnson Institute leased a new machine having an expected useful life of 12 years. The noncancelable lease term is 10 years, and Johnson may exercise a purchase option at the end of the noncancelable term. The machine should be capitalized by Johnson and depreciated over

• A) 9 years.
• B) 12 years.
• C) 10 years.
• D) 10 or 12 years at Johnson's option.

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Definitions:

Cash Dividends

Payments made by a corporation to its shareholder members, usually in the form of cash from its current or retained earnings.

Operating Activities

Transactions and events that affect the net income of a business, involving the primary revenue-producing activities of the entity.

Indirect Method

A method used in cash flow statement preparation that starts with net income and adjusts for changes in balance sheet accounts to arrive at cash provided by operating activities.

Cash Dividends

Earnings distributed by a company to its investors, usually representing a portion of profits.