Determine the Annual Effective Rate of a Customer That Does

question 34

Multiple Choice

Determine the annual effective rate of a customer that does not take advantage of credit terms of 2/10, n/30.

• A)38.59%
• B)40.59%
• C)42.59%
• D)44.59%

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Definitions:

Operating Lease

A contract allowing the use of an asset without transferring ownership rights, typically with shorter terms than a finance lease.

Implicit Interest Rate

This reflects the cost of borrowing, calculated from the lease terms, used to measure the present value of lease payments.

Straight-Line Depreciation

A method of allocating an asset’s cost evenly throughout its useful life.

Lease Classification Error

A lease classification error occurs when a lease is incorrectly categorized, for example, as an operating lease instead of a capital lease, potentially affecting financial statements.