Neils Company Leased an Asset for Use in Its Factory

question 16

Multiple Choice

Neils Company leased an asset for use in its factory.The lease agreement specifies that Neils is to make annual payments of $2,818 payable at the end of each year.The lessor classified the lease as a direct-financing lease since Neils was allowed to lease the asset at its cost of $14,000 (the present value of the lease payments) .The lessor receives a 12 percent rate of return on the lease.The estimated residual value at the end of the lease term is zero. If the lease was classified as a capital lease by Neils,how much annual depreciation would Neils record using the straight-line method?

• A) $1,400
• B) $1,310
• C) $1,750
• D) $2,818

---

Definitions:

Job Order Costing

An accounting method used to track the production costs for specific jobs or batches, identifying the direct materials, direct labor, and overhead per job.

Process Costing

A costing method used by companies that produce similar or identical units of product in batches employing a consistent process.

Home Construction

The process of building or assembling a residential dwelling, which involves planning, design, obtaining permits, and actual construction activities.

Job Order Costing

An accounting method that accumulates costs based on individual jobs, useful in manufacturing or service situations where each job is different.