Use the Following Information for Questions

question 81

Multiple Choice

Use the following information for questions.
Metro Company, a dealer in machinery and equipment, leased equipment to Sands, Inc., on
July 1, 2011.The lease is appropriately accounted for as a sale by Metro and as a purchase by Sands.The lease is for a 10-year period (the useful life of the asset) expiring June 30, 2021.The first of 10 equal annual payments of $621,000 was made on July 1, 2011.Metro had purchased the equipment for $3,900,000 on January 1, 2011, and established a list selling price of $5,400,000 on the equipment.Assume that the present value at July 1, 2011, of the rent payments over the lease term discounted at 8% (the appropriate interest rate) was $4,500,000.
-Assuming that Sands, Inc.uses straight-line depreciation, what is the amount of deprecia-tion and interest expense that Sands should record for the year ended December 31, 2011?

• A)$225,000 and $155,160
• B)$225,000 and $180,000
• C)$270,000 and $155,160
• D)$270,000 and $180,000

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Definitions:

Price-Earnings Ratio

The Price-Earnings Ratio (P/E ratio) is a financial metric that measures a company's current share price relative to its per-share earnings, used to evaluate its value.

Earnings Per Share

A metric that calculates the portion of a company's profit allocated to each outstanding share of common stock, indicating the company's profitability.

Price Per Share

The current market price of a company's share, reflecting what investors are willing to pay for one share of the company's stock.

Current Ratio

An indicator of a business's capability to settle obligations due within a year, measuring its immediate financial solvency.