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ACC 305 quiz 4

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ACC 305 quiz 4 When a company sells property and then leases it back, any gain on the sale should usually be 2. The initial direct costs of leasing 3. On January 1, 2015, Yancey, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Holt Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement. (a) The agreement requires equal rental payments at the beginning each year. (b) The fair value of the building on January 1, 2015 is $4,000,000; however, the book value to Holt is $3,300,000. (c) The building has an estimated economic life of 10 years, with no residual value. Yancey depreciates similar buildings on the straight-line method. (d) At the termination of the lease, the title to the building will be transferred to the lessee. (e) Yancey’s incremental borrowing rate is 11% per year. Holt Warehouse Co. set the annual rental to insure a 10% rate of return. The implicit rate of the lessor is known by Yancey, Inc. (f) The yearly rental payment includes $10,000 of executory costs related to taxes on the property. Future Value of Ordinary Annuity of 1 Period 5% 6% 8% 10% 12% 1 1.00000 1.00000 1.00000 1.00000 1.00000 2 2.05000 2.06000 2.08000 2.10000 2.12000 3 3.15250 3.18360 3.24640 3.31000 3.37440 4 4.31013 4.37462 4.50611 4.64100 4.77933 5 5.52563 5.63709 5.86660 6.10510 6.35285 6 6.80191 6.97532 7.33592 7.71561 8.11519 7 8.14201 8.39384 8.92280 9.48717 10.08901 8 9.54911 9.89747 10.63663 11.43589 12.29969 9 11.02656 11.49132 12.48756 13.57948 14.77566 10 12.57789 13.18079 14.48656 15.93743 17.54874 Present Value of an Annuity Due of 1 Period 5% 6% 8% 10% 12% 1 1.00000 1.00000 1.00000 1.00000 1.00000 2 1.95238 1.94340 1.92593 1.90909 1.89286 3 2.85941 2.83339 2.78326 2.73554 2.69005 4 3.72325 3.67301 3.57710 3.48685 3.40183 5 4.54595 4.46511 4.31213 4.16986 4.03735 6 5.32948 5.21236 4.99271 4.79079 4.60478 7 6.07569 5.91732 5.62288 5.35526 5.11141 8 6.78637 6.58238 6.20637 5.86842 5.56376 9 7.46321 7.20979 6.74664 6.33493 5.96764 10 8.10782 7.80169 7.24689 6.75902 6.32825 What is the amount of the minimum annual lease payment? (Rounded to the nearest dollar.) 4. In computing depreciation of a leased asset, the lessee should subtract 5. Major reasons why a company may become involved in leasing to other companies is (are) 6. Alt Corporation enters into an agreement with Yates Rentals Co. on January 1, 2015 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement: (a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $287,432 are due on January 1 of each year. (b) The fair value of the machine on January 1, 2015, is $800,000. The machine has a remaining economic life of 10 years, with no salvage value. The machine reverts to the lessor upon the termination of the lease. (c) Alt depreciates all machinery it owns on a straight-line basis. (d) Alt’s incremental borro

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