On January 1, 2012, Porter Corporation Signed a Five-Year Non-Cancelable $8 \%$

question 5

Multiple Choice

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 an Dec. 31, 2012) Far Ene years. Parter must return the equigment to the lessor end of this periad.
2) The machinery has an estimated useful life of o years and no exgected salvage value.
3) Parter uses the straight-line method af depreciation far all of its fixed assets.
4) Parter's incremental barrowing rate is $8 \%$
5) The fair value of the asset at January 1,2012 is $\$ 27,000$ .
-Under which of the following conditions does the equipment lease qualify for capital lease accounting?

• A) The lease contains a bargain purchase option.
• B) The lease term is equal to or greater than 75% of the asset's economic life.
• C) A, and B are correct answers.
• D) The lease transfers ownership to the lessee at the end of the lease term.

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