For the Following Lease, Determine the Amount the ROU Asset

question 23

Multiple Choice

For the following lease, determine the amount the ROU asset will be initially measured at.
$\begin{array}{|l|l|}\hline \begin{array}{l}\text { Annual payment (due on commencement date } \\\text { of lease) }\end{array} & \$ 30,000 \\\hline \text { Lease term } & 5 \\\hline \text { Incremental borrowing rate } & 10 \% \\\hline \text { Implicit rate (not readily determinable by lessee) } & 8 \% \\\hline \text { Guaranteed residual value } & 28,000 \\\hline \text { Expected payout under guarantee } & 15,000 \\\hline\end{array}$

• A)123,037
• B)134,410
• C)139,573
• D)142,482

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Definitions:

Du Pont Identity

A formula that breaks down return on equity into three component parts: profit margin, asset turnover, and financial leverage.

Profit Margin

A financial ratio that shows the percentage of revenue that exceeds the cost of goods sold, indicating the efficiency of a company in generating profit.

Operating Profit Margin

A profitability ratio calculated as operating income divided by revenue, indicating the percentage of revenue that is left over after paying for variable costs of production.

Cost of Goods Sold

Expenses directly incurred from the production of a company's sold goods, involving the cost of labor and materials.