1) Company Q leases the following asset from Company T: Fair value of $200,000

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1) Company Q leases the following asset from Company T:

Fair value of $200,000.

Useful life of 5 years with no salvage value.

Lease term is 4 years.

Annual lease payment is $30,000 and the lease rate is 11%.

The company’s overall borrowing rate is 9.5%.

The firm can purchase the equipment at the end of the lease period for $45,000.

What type of lease is this for Company Q?

Operating.

Finance.

Sales type.

Long term.

 

2) Neal Corp. entered into a nine-year capital lease on a warehouse on December 31, 2016. Lease payments of $52,000, which includes real estate taxes of $2,000, are due annually, beginning on December 31, 2017, and every December 31 thereafter. Neal does not know the interest rate implicit in the lease; Neal’s incremental borrowing rate is 9%. The rounded present value of an ordinary annuity for nine years at 9% is 6.0. What amount should Neal report as lease liability at December 31, 2016?

A. $300,000

B. $327,000

C. $450,000

 

D. $468,000

 

3) On January 2, 2016, Nori Mining Co. (lessee) entered into a 5-year lease for drilling equipment. Nori accounted for the acquisition as a financel lease for $240,000, which includes a $10,000 bargain purchase option. At the end of the lease, Nori expects to exercise the bargain purchase option. Nori estimates that the equipment’s fair value will be $20,000 at the end of its 8-year life. Nori regularly uses straight-line amortization on similar equipment. For the year ended December 31, 2016, what amount should Nori recognize as amortization expense on the leased asset?

A. $27,500

B. $30,000

C. $48,000

D. $46,000

4) Scott Corp. received cash of $20,000 that was included in revenues in its 2016 financial statements, of which $12,000 will not be taxable until 2017. Scott’s enacted tax rate is 30% for 2016, and 25% for 2017. What amount should Scott report in its 2016 balance sheet for deferred income tax liability?

A. $3,000

B. $2,000

C. $3,600

D. $2,400

5)  Wolf Inc. began a defined benefit pension plan for its employees on January 1, 2016. The following data are provided for 2016 as of December 31, 2016:

 

 

Projected benefit obligation	$385,000
Accumulated benefit obligation	340,000
Plan assets at fair value	255,000
Pension expense	95,000

 

Employer’s cash contribution (end of year) 255,000

 

 

What amount should Wolf report as a net pension liability at December 31, 2016?

A. $0

B. $45,000

C. $85,000

D. $130,000