On January 1st, 2014, ABC Inc

question 5

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%.
Assuming that this qualifies as a finance lease,
-what would be the amount of DEF Inc's annual depreciation as per ASPE (rounded) ?

• A)$9,901
• B)$5,000
• C)$10,000
• D)$10,076

---

Definitions:

Doctrine of Consequentialism

This ethical doctrine judges the morality of an action based on its outcomes or consequences, emphasizing the greatest good for the greatest number.

Famous Philosopher

A renowned individual known for significant contributions to philosophy, including ethical, metaphysical, logical, and social theories.

Refined Version

A version that has been improved or made clearer for better understanding or effectiveness.

Hedonistic Calculus

A method proposed by utilitarian philosophers for calculating the moral rightness of an action based on the net pain or pleasure it produces.