Compare the Cost of the Following Leasing Agreement with the Finance

question 21

Multiple Choice

Compare the cost of the following leasing agreement with the finance charge on a loan for the same time period.The price of the car is $14,000,and its projected residual value at the end of four years is $3,000.
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Monthly payment
$250
Capital cost reduction
$1,000
Disposition charge
$200
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Other things being equal,one would want to finance this car rather than take this lease if the finance cost were less than
​

• A) ​$200.
• B) ​$1,550.
• C) ​$2,200.
• D) ​$2,450.

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Definitions:

Direct Write-off

A method of accounting for bad debts where uncollectible accounts receivable are directly written off against income at the time they are deemed uncollectible.

Bad Debts Recovered

When an account receivable has been written off and is recovered, this account, which is in the Other Revenue category, is credited in the direct write-off method if the recovery is in a year following the write-off.

Allowance for Doubtful Accounts

A contra asset account that estimates the portion of receivables that may not be collectible, affecting a company’s net income and assets.

Bad Debts Expense

An expense reported on the income statement, representing the estimated irrecoverable amounts from customers who can no longer pay their obligations.