Elton Electronics Leases Testing Equipment to Startup Corporation

question 9

Multiple Choice

Elton Electronics leases testing equipment to Startup Corporation. The equipment is not specialized and is delivered on January 1, 2019. The fair value of the equipment is $118,000. The cost of the equipment to Elton is $113,000 and the expected life of the testing equipment is 8 years. Elton incurs initial direct costs of $10,000, which they elect to expense. The lease term for the equipment is 8 years, with the first payment due upon delivery, and seven subsequent annual payments beginning on December 31, 2019 and ending on December 31, 2025. Elton's implicit rate is 5% and they expect that collection of the $14,500 lease payments is probable. What is the principal balance in the Net Investment in Lease - Sale Type account after the second payment on December 31, 2019?

• A) $98,402
• B) $83,902
• C) $113,000
• D) $73,597

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Definitions:

Joint Manufacturing Processes

A method in which multiple products are produced simultaneously during a production run, allowing cost efficiencies and resource optimization.

Joint Costs

Costs incurred in the process of producing two or more products simultaneously up to a split-off point, where they become distinguishable.

Market Value at Split-Off Method

A method used in accounting to allocate joint costs to products based on their market values at the point where the products are separable or "split off" from the joint process.

Joint Costs

Costs incurred in the process of producing two or more joint products before the point at which the products become separately identifiable.