Surplus Mining Company Has Leased a Machine from Craft Machinery

question 174

Multiple Choice

Surplus Mining Company has leased a machine from Craft Machinery Company.The annual payments are $6,000 and the life of the lease is 8 years.It is estimated that the useful life of the machine is 9 years.How would Surplus Mining record the acquisition of the machine?

• A) The machine would be recorded as an asset with a cost of $48,000.
• B) The company would not record the machine as an asset but would record rent expense of $6,000 per year.
• C) The machine would be recorded as an asset, at the present value of the annual cash payments, $6,000 for 8 years.
• D) The machine would be recorded as an asset, at the present value of the annual cash payments, $6,000 for 9 years.

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Definitions:

Expense Account

An account that records the costs of operating a business.

Land

An asset representing the ground or property on which a business operates, not subject to depreciation.

Purchase Price

The amount of money paid to buy a good or service. In accounting, it refers to the cost at which an asset is acquired.

Business Site

The physical location or online presence where a company conducts its operations or business activities.