# Acct 311 Case Study

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ACCT 311 Homework Assignment 7 https://hwguiders.com/downloads/acct-311-homework-assignment-7/ ACCT 311 Homework Assignment 7 1. On December 31, Year One, Ace signs a lease to use a truck for four years. The truck has a current value of \$58,600. Four annual payments of \$10,000 are to be paid with the first made on December 31, Year One. After that time, the truck (with an expected life of eight years) will be returned to the lessor. Ace has an incremental borrowing rate of 6 percent. The lessor has an implicit annual interest rate of 8 percent built into the contract. Ace is aware of this implicit rate. The present value of a four-year annuity due of \$10,000 at a 6 percent annual rate is \$36,700. The present value of a four-year annuity due of \$10,000 at an 8 percent annual rate is \$35,770. What liability should Ace report on its December 31, Year One, balance sheet? 1. \$0 2. \$10,000 3. \$25,770 4. \$26,700 2. A company leases a machine on January 1, Year One for five years which call for annual payments of \$4,000 for the first year and then \$10,000 per year after that. The present value of these payments based on a reasonable interest rate of 10 percent is assumed to be \$38,000. This lease…show more content…
The Wasala Corporation leases an airplane on January 1, Year One for eight years for payments of \$20,000 per year beginning immediately. The plane has an expected life of 10 years. The prime rate of interest is 6 percent but Wasala has an incremental borrowing rate of 8 percent. The present value of an ordinary annuity of \$1 at 6 percent for 8 years is 6.22 and the present value of an ordinary annuity of \$1 at 8 percent for 8 years is 5.75. The present value of an annuity due of \$1 at 6 percent for 8 years is 6.58 and the present value of an annuity due of \$1 at 8 percent for 8 years is 6.19. At the end of 8 years, title to the airplane will be conveyed to Wasala. How much expense should Wasala recognize in Year Two? (round to the nearest