Gambet Labs Entered into a Lease Agreement on January 1,20X3,to $\begin{array} { l l l } \text { Rent Expenco } & 13,000 & \\\text { Cash } & & 13,000 \\\end{array}$

question 47

Multiple Choice

Gambet Labs entered into a lease agreement on January 1,20X3,to use an x-ray machine.The machine has a useful life of 6 years.Gambet Labs will make annual lease payments of $13,000 for 6 years,beginning on December 31,20X3.Assume a 14% interest rate.Using the present value tables,what is the journal entry to be made by Gambet Labs on December 31,20X3,to record the annual lease payment?

• A)\(\begin{array} { l l l }
• \text { Rent Expenco } & 13,000 & \\
• \text { Cash } & & 13,000 \\
• \end{array}\)
• B)\(\begin{array}{lccc}
• \text { Capital Lease Obligation } & 13,000 & \\
• \text { Eash } & & 13,000 \\
• \end{array}\)
• C)\(\begin{array}{lccc}
• \text { Capital Lease Obligation } & 2,080 & \\
• \text { Interest Expense } & 10,920 & \\
• \text { Cash } & & 13,000 \\
• \end{array}\)
• D)\(\begin{array}{lccc}
• \text { Capital Lease Obligation } & 5,923 & \\
• \text { Interest Expense } & 7,077 & \\
• \text { Cash } & & 13,000 \\
• \end{array}\)
• E)\(\begin{array}{lccc}
• \text { Capital Lease Obligation } & 11,180 & \\
• \text { Interest Expense } & 1,820 & \\
• \text { Cash } & & 13,000
• \end{array}\)

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Definitions:

Profitability Index

A financial tool that calculates the relationship between the costs and benefits of a project, where a value above 1 indicates a profitable project.

Present Value

The current value of a future sum of money or stream of cash flows, given a specified rate of return.

Initial Investment

The amount of money used to start a project, purchase assets, or establish a business foundation.

Simple Rate Of Return

A method of calculating the return on an investment without taking into account compound interest or the passage of time.