11.The balance in the capital lease (liability) account that will appear on the balance sheet of Kachelmeyer on 1 January 2005, after making the first lease payment will be:

A)   $137,552.

B)   $151,307.

C)   $36,286.

D)   $115,021.

12.Classifying a lease as an operating lease for a lessee, as opposed to a capital lease, will result in:

A)                  Higher                         Lower                         Higher

B)                 Higher                          Lower                          Lower

C)                 Lower                          Higher                           Lower

D)                 Lower                            Lower                         Higher

13.A 5-year noncancellable lease signed on 31 December 2006 requires annual payments of $47,963.24, beginning on 31 December 2006. The present value of the lease payments discounted at the appropriate interest rate of 10% is $200,000.

Assuming zero residual value and that the first lease payment is made on 31 Decemeber 2006, the reported lease expense for the year ended 31 December 2007 is:

A)   $60,000.

B)   $70,000.

C)   $55,204.

D)   $87,204.

14.What amount should the firm report as a lease liability as of 31 December 2007?

A)   $104,074.

B)   $200,000.

C)   $119,277.

D)   $152,037.

15.Management of Caldor Kites, Inc., is considering leasing a new asset. Information on the asset and the terms of the lease are as follows:

§ The asset has a fair market value of $1.3 million, an estimated useful life of 7 years, and no salvage value.

§ Company incremental borrowing rate is 13.0%.

§ Lease term of 5 years with lease payments of $24,700 due at the beginning of each month.

§ Implicit lease rate is 10.0%.

§ The lease does not contain a bargain purchase option and there is no title transfer at the end of the lease.

If management leases the asset (Note: Carry calculations to at least 3 decimal places):

A)   the current ratio is unaffected (all else equal).

B)   in the first month, cash flow from operations will decrease by approximately $9,770.

C)   the lease period is greater than 75% of the asset's useful life.

D)   in the first month, cash flow from operations will decrease by approximately $24,700.