Reference no: EM132478356
Question - Bohl Co. purchases land and constructs a service station and car wash for a total of $360,000. At January 2, 2007, when construction is completed, the facility and land on which it was constructed are sold to a major oil company for $400,000 and immediately leased from the oil company by Bohl. Fair value of the land at time of the sale was $40,000. The lease is a 10-year, noncancelable lease. Bohl uses straight-line depreciation for its other various business holdings. The economic life of the facility is 15 years with zero salvage value. Title to the facility and land will pass to Bohl at termination of the lease. A partial amortization schedule for this lease is as follows:
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Payments
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Interest
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Amortization
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Balance
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Jan. 2, 2007
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|
|
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$400,000.00
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Dec. 31, 2007
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$65,098.13
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$40,000.00
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$25,098.13
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374,901.87
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Dec. 31, 2008
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65,098.13
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37,490.19
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27,607.94
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347,293.93
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Dec. 31, 2009
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65,098.13
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34,729.39
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30,368.74
|
316,925.19
|
Q1. From the viewpoint of the lessor, what type of lease is involved above?
a. Sales-type lease
b. Sale-leaseback
c. Direct-financing lease
d. Operating lease
Q2. What is the discount rate implicit in the amortization schedule presented above?
a. 12%
b. 10%
c. 8%
d. 6%
Q3. The total lease-related expenses recognized by the lessee during 2008 is which of the following?
a. $64,000
b. $65,098
c. $73,490
d. $61,490
Q4. What is the amount of the lessee's liability to the lessor after the December 31, 2009 payment?
a. $400,000
b. $374,902
c. $347,294
d. $316,925
Q5. The total lease-related income recognized by the lessee during 2008 is which of the following?
a. $ -0-
b. $2,667
c. $4,000
d. $40,000