On January 1,2014,ABC INC

question 189

Multiple Choice

On January 1,2014,ABC INC.leased a machine to MNO.The lease was for a 10-year period,which approximated the useful life of the machine.ABC INC.purchased the machine for $120,000 and expects to earn a 10 percent return on its investment,based upon an annual rental of $17,754 payable in advance each January 1st.Assuming that the lease was a direct financing lease,what should be the interest entry on ABC INC.'s books on December 31,2014?

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Definitions:

Weighted Average

A calculation method that multiplies each component by a factor reflecting its importance and sums these products to derive an average.

CAPM

The Capital Asset Pricing Model (CAPM) is a financial model that describes the relationship between systematic risk and expected return for assets, particularly stocks.

Expected Return

The weighted average of all possible returns for an investment, taking into account the likelihood of each outcome.

Unsystematic Risk

A type of risk that affects a specific company or industry, distinct from marketwide risks.