Use the Following Information for Questions

question 74

Multiple Choice

Use the following information for questions.
On January 1, 2011, Sauder Corporation signed a five-year noncancelable lease for equipment.The terms of the lease called for Sauder to make annual payments of $50,000 at the beginning of each year for five years with title to pass to Sauder at the end of this period.The equipment has an estimated useful life of 7 years and no residual value.Sauder uses the straight-line method of depreciation for all of its fixed assets.Sauder accordingly accounts for this lease transaction as a finance lease.The minimum lease payments were determined to have a present value of $208,493 at an effective interest rate of 10%.
-On December 31, 2011, Kuhn Corporation leased a plane from Bell Company for an eight-year period expiring December 30, 2019.Equal annual payments of $150,000 are due on December 31 of each year, beginning with December 31, 2011.The lease is properly classified as a Finance lease on Kuhn's books.The present value at December 31, 2011 of the eight lease payments over the lease term discounted at 10% is $880,264.Assuming the first payment is made on time, the amount that should be reported by Kuhn Corporation as the lease liability on its December 31, 2011 statement of financial position is

• A)$880,264.
• B)$818,290.
• C)$792,238.
• D)$730,264.

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Definitions:

Price-Fixing

An illegal agreement among competitors to set prices at a certain level, restricting competition and violating antitrust laws.

Penetration Pricing

A strategy where a product is priced lower than its competitors or market average to gain market share rapidly at the expense of short-term profitability.

Sales Volume

The total number of units sold within a specified timeframe.

Unit Profits

The profit earned on each unit of product sold, calculated by subtracting the cost to produce and distribute a unit from its sale price.