On December 31, 2015, JKL Leased a New Machine from MNO.The

question 195

Multiple Choice

On December 31, 2015, JKL leased a new machine from MNO.The following information relates to the lease transaction: * the machine has an estimated useful life of seven years, which coincides with the lease term.
* lease rentals consist of seven equal annual payments of $100,000, the first of which was paid on December 31, 2015.
* MNO's implicit interest rate is 12 percent, which is known by JKL.
* JKL's incremental borrowing rate is 14 percent at December 31, 2015.
* present value of an annuity of $1 in advance for seven periods at 12 percent is 5.11.
* present value of an annuity of $1 in advance for seven periods at 14 percent is 4.89.
At the inception of the lease, JKL should record a capitalized lease liability of (choose the amount closest to your answer) :

• A)$511,000
• B)$489,000
• C)$411,000
• D)$500,000

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Definitions:

Preferred Stock

A type of corporate share that is prioritized over common stock in terms of asset and income claims, usually with dividends paid out to these shareholders first.

Bankruptcy

The legal process through which individuals or businesses unable to pay their debts can seek relief from some or all of their liabilities.

Equity

The ownership interest of shareholders in a corporation, represented by their shares.

Common Stock

A form of corporate equity ownership, a type of security that represents ownership in a corporation and a claim on part of the corporation's profits.