Leewin Brokerage Enters into a Lease Agreement with Bumble Motors

question 106

Multiple Choice

Leewin Brokerage enters into a lease agreement with Bumble Motors to lease an automobile with a fair value of $76,000 under a 5-year lease on December 20, 2018. The lease commences on January 1, 2019, and Leewin will return the automobile to Bumble on December 31, 2023. The automobile has an estimated useful life of 7 years. Leewin made a lease payment of $10,000 on December 20, 2018. In addition, the lease agreement stipulates annual payments of $10,000, due on January 1 of 2019, 2020, 2021, 2022, and 2023. The implicit rate of the lease is 6% and is known by Leewin. There is no purchase option, no lease incentives, no residual value guarantees, and no transfer of ownership. Leewin incurs initial direct costs of $1,100. In addition to the information provided above, assume that Bumble provided a $6,000 incentive. Assuming that this is classified as an operating lease, what is the annual lease expense reported on the income statement?

• A) $10,000
• B) $12,220
• C) $11,100
• D) $11,020

Understand the application of game theory in competitive business strategies.

Identify the influence of market structure changes on strategic decisions.

Explore the impact of external threats on strategic decision-making.

Discuss the strategic effects of firm actions on competitor behavior.

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Definitions:

Increasing Returns

A situation in economics where an increase in the amount of inputs leads to a greater proportional increase in the amount of output.

Factor Endowments

The amount of land, labor, capital, and entrepreneurship that a country possesses and can exploit for manufacturing and service provision.

Technology

The technical means for producing goods and services.

Heckscher-Ohlin Model

An economic theory that proposes countries will export products that utilize their abundant and cheap factors of production and import goods that require resources that are rare or expensive domestically.