If a Corporation Signs a Ten-Year Lease for a Building

question 50

Multiple Choice

If a corporation signs a ten-year lease for a building and the present value of the lease payments is $250,000,the lease is a capital lease if the

• A)fair value of the building is $1,000,000.
• B)remaining useful life of the building is 20 years.
• C)lessor can purchase the building for $5,000 at the end of the lease when the fair value is estimated to be $25,000.
• D)building reverts back to the lessor at the end of the lease.

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Definitions:

Direct Material

Raw materials that are directly traceable to the production of a specific good or service.

Purchased

Refers to items or services that have been bought by a company from outside suppliers.

Raw Materials Inventory

Stocks of the basic raw materials that are input into a manufacturing process and are waiting to be processed or used.

Ending Balance

The amount of money or value in an account at the end of a financial reporting period, after all additions and subtractions have been accounted for.