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Question 6
The following information pertains to a sale and leaseback of equipment
by Mega Co. on December 31, 2005: What amount of deferred gain on
the sale should Mega report at December 31, 2005?
Question 7
On August 1, 2005, Metro, Inc. leased a luxury apartment unit to Klum.
The parties signed a 1-year lease beginning September 1, 2005 for a
$1,000 monthly rent payable on the first day of the month. At the August
1 signing date, Metro collected $540 as a nonrefundable fee for allowing
Klum to sign a 1-year lease (the normal lease term is three years) and
$1,000 rent for September. Klum has made timely payments each month,
but prepaid January's rent on December 20. In Metro's 2005 income
statement, rent revenue should be reported as
Question 8
On January 1 of the current year, Tell Co. leased equipment from Swill
Co. under a nine-year sales-type lease. The equipment had a cost of
$400,000 and an estimated useful life of 15 years. Semiannual lease
payments of $44,000 are due every January 1 and July 1. The present
value of lease payments at 12% was $505,000, which equals the sales
price of the equipment. Using the straight-line method, what amount
should Tell recognize as depreciation expense on the equipment in the
current year?
Question 9
A twenty-year property lease, classified as an operating lease, provides
for a 10% increase in annual payments every five years. In the sixth year
compared to the fifth year, the lease will cause the following expenses to
increase