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
Question 10