question archive Q1) On January 1, 20A1, Sunshine Co
Q1) On January 1, 20A1, Sunshine Co
Subject:AccountingPrice: Bought3
Q1) On January 1, 20A1, Sunshine Co. changed its inventory method from LIFO to FIFO for both financial and income tax reporting purposes. Inventory determined by using the FIFO method exceeded the amount of inventory under the LIFO method by $500,000 on January 1, 20A1. Assume that the tax rate for all years is 30%. How should Sunshine report this change in inventory methods in 20A1.
Group of answer choices
a. The income statement for 20A1 will include a $350,000 decrease to net income due to this cumulative effect of an accounting change.
b. The retained earnings statement for 20A1 will include a $500,000 decrease to beginning retained earnings.
c. The income statement for 20A1 will include a $350,000 increase to net income due to this cumulative effect of an accounting change.
d. The retained earnings statement for 20A1 will include a $350,000 increase to beginning retained earnings.
Q2: On January 2, 2021, Gold Star Leasing Company leases equipment to Brick Co. with 5 equal annual payments of $160,000 each, payable beginning January 2, 2021. Brick Co. agrees to guarantee the $150,000 residual value of the asset at the end of the lease term. The expected value of the residual value is $50,000. Brick's incremental borrowing rate is 10%, however it knows that Gold Star's implicit interest rate is 8%. What journal entry would Brick Co. make at January 2, 2021 to record the lease?
PV Annuity Due PV Ordinary Annuity PV Single Sum
8%, 5 periods 4.31213 3.99271 .68508
10%, 5 periods 4.16986 3.79079 .62092
Group of answer choices
A. Debit - Right-of-Use-Asset - 689,940, Credit - Cash - 160,000, Credit - Lease Liability - 529,940
B. Debit - Right-of-Use-Asset - 707,342, Credit - Cash - 160,000, Credit - Lease Liability - 547,342
C. Debit - Right-of-Use-Asset - 598,449, Credit - Lease Liability - 598,449
D. Debit - Right-of-Use-Asset - 758,449, Credit - Cash - 160,000, Credit - Lease Liability - 598,449
Q3: Alt Corporation enters into an agreement with Yates Rentals Co. on January 1, 2021 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 $574,864 are due on January 1 of each year.
(b) The fair value of the machine on January 1, 2021, is $1,600,000. 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 borrowing rate is 10% per year. Alt does not have knowledge of the 8% implicit rate used by Yates.
(e) Immediately after signing the lease, Yates finds out that Alt Corp. is the defendant in a suit which is sufficiently material to make collectibility of future lease payments doubtful.
What type of lease is this from Alt Corporation's viewpoint?
A. Sales-type lease B. Direct financing lease C. Operating lease D. Finance lease
Q4: Carey sold its headquarters building at a gain, and simultaneously leased back the building. The lease was reported as a capital lease. At the time of the sale, the gain should be reported as
A. A deferred gain. B. An extraordinary item, net of income tax.
C. A separate component of stockholders' equity. D. Operating income
Q5: Which of the following best describes current practice in accounting for leases?
A. All leases are capitalized.
B. Leases are not capitalized.
C. All long-term leases are capitalized.
D. Leases similar to installment purchases are capitalized.
Q6: In computing amortization of a leased asset where there is no bargain purchase option,
A. an unguaranteed residual value and depreciate over the term of the lease.
B. a guaranteed residual value and depreciate over the life of the asset.
C. an unguaranteed residual value and depreciate over the life of the asset.
D. no residual value and depreciate over the term of the lease.
