On January 1st, 2014, ABC Inc

question 61

Multiple Choice

On January 1st, 2014, ABC Inc.(the lessor) agrees to lease a piece of specialized piece of machinery to DEF Inc.(the lessee) for 5 years.ABC Inc.is a financial intermediary specializing in leasing arrangements such as the one described below.Details are as follows: Fair value of machinery at inception of the lease: $100,000.Lease term: 5 years (no bargain renewal terms) .
Executory costs of $10,000 are reimbursed by the lessee.
5 Annual lease payments of $23,000 each are made on January 1st of each year starting on January 1st, 2014.
Bargain purchase option at end of lease: $5,000.It is estimated that the equipment will have a fair value of $10,000 at the end of the lease.
Economic life of the asset is 10 years, after which the equipment will be worthless.Straight-line depreciation applies.
ABC's implicit interest rate with respect to this lease is 10%.This is rate is known by DE Inc.
DEF Inc's incremental borrowing rate is 9%.
What would be the amount of finance revenue that ABC Inc.would recognize throughout the lease?

• A)$20,000
• B)$23,000
• C)$5,000
• D)$15,000

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Definitions:

Retrieval Cues

Stimuli or signals that help recall memories and information from the brain.

Rote Rehearsal

A method of learning through continuous repetition, often without comprehension of the content, reinforcing memory retention.

Long-Term Memory

A type of memory responsible for the storage of information for an extended period, ranging from a few minutes to a lifetime.

Short-Term Memory

The skill of maintaining a compact set of facts in an immediate, accessible state within the mind for a temporary phase.