In Computing the Present Value of the Minimum Lease Payments

question 15

Multiple Choice

In computing the present value of the minimum lease payments under SFAS No.13,the lessee should

• A)Use its incremental borrowing rate in all cases
• B)Use either its incremental borrowing rate or the implicit rate of the lessor,whichever is higher,assuming that the implicit rate is known to the lessee
• C)Use either its incremental borrowing rate or the implicit rate of the lessor,whichever is lower,assuming that the implicit rate is known to the lessee
• D)Use the implicit rate in all cases.

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Definitions:

Double Taxation

The levy of tax by two or more jurisdictions on the same declared income (in the case of income taxes), asset (in the case of capital taxes), or financial transaction (in the case of sales taxes).

Tax Base

The assessed value of all taxable income, property, assets, or other items that a government can tax.

Income Tax

A tax levied by governments on individuals or entities based on their income or profits.

Saving Rate

The portion of income that is not spent on consumption but rather saved or invested.