Porter Corporation NOTE: the Following Multiple Choice Questions Require Present Value Information

question 24

Multiple Choice

Porter Corporation
NOTE: The following multiple choice questions require present value information.
On January 1, 2012, Porter Corporation signed a five-year non-cancelable lease for certain machinery. The terms of the lease called for:
1) Price to make annual payments of $60,000 at the end of each year (starting on Dec. 31, 2012) for five years. Porter must return the equipment to the lessor end of this period.
2) The machinery has an estimated useful life of 6 years and no expected salvage value.
3) Porter uses the straight-line method of depreciation for all of its fixed assets.
4) Porter's incremental borrowing rate is 8%.
5) The fair value of the asset at January 1, 2012 is $275,000.
What accounting method should Porter use to account for the equipment lease?

• A) Operating Lease method
• B) Capital Lease method
• C) Equipment Lease method
• D) Lessee Accounting method

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Definitions:

Task Variety

The degree to which a job or role involves a range of different activities requiring various skills and talents.

Job Characteristics Model

A theory that proposes that the nature of one's job can affect job satisfaction, and identifies five core job dimensions that can motivate individuals and enhance job satisfaction.

Core Job Characteristics

Fundamental attributes of a job that affect employee motivation and job satisfaction, including skill variety, task identity, task significance, autonomy, and feedback.

Fixed Price

A pricing strategy where the cost of a product or service is not subject to change under any circumstances.