On January 1, 2020, Marlene Corp

question 52

Multiple Choice

On January 1, 2020, Marlene Corp. enters into an agreement with Dietrich Rentals Inc. to lease a machine from them. Both corporations adhere to ASPE. The following data relate to the agreement:
1) The term of the non-cancellable lease is three years with no renewal option. Payments of $ 271,622 are due on December 31 of each year.
2) The fair value of the machine on January 1, 2020, is $ 700,000. The machine has a remaining economic life of 10 years, with no residual value. The machine reverts to the lessor upon the termination of the lease.
3) Marlene depreciates all its machinery on a straight-line basis.
4) Marlene's incremental borrowing rate is 10%. Marlene does not have knowledge of the 8% implicit rate used by Dietrich.
5) Immediately after signing the lease, Dietrich discovers that Marlene is the defendant in a lawsuit that is sufficiently material to make collectibility of future lease payments doubtful.
If Dietrich accounts for the lease as an operating lease, what revenue(s) and/or expense(s) will be reported in calendar 2020 in relation to this lease?

• A) Rental Revenue
• B) Interest Income
• C) Interest Expense and Depreciation Expense
• D) Rental Revenue and Depreciation Expense

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Definitions:

Money Supply

The money supply is the total amount of monetary assets available in an economy at a specific time, including cash, coins, and balances held in checking and savings accounts.

Money Supply

is the total amount of monetary assets available in an economy at any given time.

Bond Sale

A bond sale involves the issuance of bonds by an entity to raise capital, where buyers are essentially loaning money to the issuer for a predetermined time period, with the promise of interest payments.

Federal Reserve

The central banking system of the United States, which regulates the U.S. monetary and financial system.