[reo]

NINJA Question –

Need help with this MCQ, can someone assist me? Please don’t just provide the answer, but explain how you came to that conclusion(break it down). Any and all assistance is appreciated! Thank you and God bless!

Farm Co. leased equipment to Union Co. on July 1, 2015, and properly recorded the

sales-type lease at $63,954, the present value of the lease payments discounted at 5%.

The first of six annual lease payments of $12,000 due at the beginning of each year of the

lease term was received and recorded on July 3, 2015. Farm had purchased the equipment

for $62,753. What amount of revenue or income from the lease should Farm report in its

2015 income statement?

A – $0

B – $1,500

C – $2,000

D – $2,500

Reo

[golfball7773]

Try the study group(my knowledge of FAR sucks right now) or wait until tomorrow when Jeff posts the Quarter 3 Study groups 🙂

FAR: 63, 55, 62
REG: 65, 77*
AUD: Fail, 64, 71
BEC: 72, 74, 81

*expired

[wombataholic]

The answer is D – 2,500. Here's how I came up with it:

The profit on the sale is $1,201. (Sale Price – cost of goods sold)

There is a payment of $12,000 at the start of the lease, reducing the carrying value of the lease to 51,954. (63,954 – 12000 = 51,954)

The carrying amount of the lease (51,954) then accrues interest for the next six months (51,954*.05 / 2 = 1298.85, rounded up to 1299).

Add the profit on the sale to the accrued interest for the answer. (1,201 + 1,299 = 2,500).

Hope this helps.

Licensed CPA
Passed each section on the first try with Ninja Notes/MCQ/Audio

[Author]

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