Joshua Trucking Leased a Set of Special-Use Trailers for Six

question 122

Multiple Choice

Joshua Trucking leased a set of special-use trailers for six years at an annual rental of $30,000, payable at the end of each year. At the end of these six years the trailers are expected to be essentially worthless. Joshua Trucking's cost of financing is nine percent. What would be the change in Joshua Trucking's balance sheet as a result of leasing this equipment?

• A)Add $40,000 to the Leased Trailers and Lease Obligations account.
• B)Add $40,000 to the Leased Trailers account and $134,578 to the Lease Obligations account.
• C)Add $134,578 to the Leased Trailers and Lease Obligations account.
• D)Make no change in the balance sheet accounts.

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Definitions:

Fixed Expenses

Costs that do not vary with the level of production or sales, such as rent, insurance, and salaries, providing predictability in budgeting.

Break-even

The point at which total costs equal total revenues, meaning there is no profit or loss.

Variable Cost

Variable cost is a cost that changes in proportion to the level of production or business activity, such as raw materials and direct labor.

Monthly Dollar Sales

The total revenue generated from sales, expressed in dollars, for a specific month.