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:

Stock Dividend

A stock dividend is a payment made by a corporation to its shareholders in the form of additional shares, rather than paying dividends in cash, indicating investment back into the company.

Cash Dividend

A payment made by a company out of its earnings to shareholders, usually in the form of cash.

Dividends Payable

A liability indicating the amount of dividends that a company has declared to pay out to its shareholders but has not yet paid.

Dividends Declared

profits that a company's board of directors has decided to distribute to shareholders, typically in the form of cash payments or additional shares.