LMO Leased an Asset for Use in Its Factory

question 122

Multiple Choice

LMO leased an asset for use in its factory.The lease specified that LMO was to make annual payments of $2,818 payable at the end of each year.The lessor classified the lease as a direct financing lease because LMO was allowed to lease the asset at cost of $14,000 (i.e., the present value of the lease payments) .The lessor received a 12 percent rate of return on the lease.The estimated residual value at the end of the lease term is zero.If the lease was classified as a finance lease by LMO, how much annual depreciation (using SL) should LMO record?

• A)$1,400
• B)$1,750
• C)$2,818
• D)$1,310

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Definitions:

Insurance Policy

A contract between an individual or entity and an insurance company specifying the terms for the coverage provided against specific risks.

Intricate Terminology

Specialized and often complex vocabulary associated with a particular field or area of expertise.

Violate Public Policy

To act in a manner that is contrary to the basic policies or principles that society considers important for the collective well-being.

Cancel Policy

refers to the conditions under which a policy, agreement, or contract can be terminated or voided by either party involved.