Question

cuate Accounting, 16e INTERMEDIATE ACCOUNTING (ACC301/3 • Assignment Gradebook ORION Downloadable eTextbook CALCULATOR FULL SCREEN PRINTER VERSION BACK NEXT Multiple Choice Question 62 Your answer is incorrect. Try again. On January 1, 2018, Carla Vista Corporation signed a 5-year noncancelable lease for equipment. The terms of the lease called for Carla Vista to make annual payments of $195000 at the beginning of each year for 5 years beginning on January 1, 2016 with the title passing to Carla Vista at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Carla Vista uses the straight line method of depreciation for all of its foced assets. Carla Vista accordingly accounts for this lease transaction as a finance lease. The minimum lease payments were determined to have a present value of $813124 at an effective interest rate of 10%. In 2018, Carla Vista should record interest expense of $113688. $61812 $81312 Question Attempts: 2 of Jused SUBMIT ANSWER DE FOR LATER Save for later acy Polix 10.2990-2011 Wr o c. A Reserved

Answer 1

	Q1)
		The lease obligation should be recorded at the present value of minimum lease payment
		The interset expenses would be = lease obligation * effective interest rate
					= $813124 *10%
					=$81312
		Therefore the last option is correct.
	Q2)	The lease obligation should be recorded at the present value of minimum lease payment
		Beginning Lease Obligation				$       29,34,209
		Add:				$          2,93,421
		Interest on lease obligation
		($2934209*10%)
		Less: Annual Lease Payment				$        -5,50,000
		Therefore lease obligation to be				$       26,77,630
		reported on 31st December 2019
		Therefore the THIRD option is correct.