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Lease A does not contain a purchase option, but the lease term is
equal to 90 percent of the estimated economic life of the leased
property. Lease B does not transfer ownership of the property to
the lessee by the end of the lease term, but the lease term is equal
to 75 percent of the estimated economic life of the leased
property. How should the lessee classify these leases?
Question 17
On December 31, 2005, Bit Co. had capitalized costs for a new
computer software product with an economic life of five years.
Sales for 2006 were 30 percent of expected total sales of the
software. At December 31, 2006, the software had a
net realizable value equal to 90 percent of the capitalized cost.
What percentage of the original capitalized cost should be
reported as the net amount on Bit's December 31, 2006 balance
sheet?
Question 18
On January 1, 2001, Babson, Inc. leased two automobiles for
executive use. The lease requires Babson to make five annual
payments of $13,000 beginning January 1, 2001. At the end of the
lease term, December 31, 2005, Babson guarantees the residual
value of the automobiles will total $10,000. The lease qualifies as a
capital lease. The interest rate implicit in the lease is 9%. Present
value factors for the 9% rate implicit in the lease are as follows:
Babson's recorded capital lease liability immediately after the
first required payment should be
Question 19
YIV Inc. is a multidivisional corporation which has both
intersegment sales and sales to unaffiliated customers. YIV should