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Question 1

ACC 422 Complete Class
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Answer 1

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ACC 422 Intermediate Financial Accounting II

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Question 2

ACC 422 Week 1 DQ 5
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What are the basic issues involved with the valuation of receivables?

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Question 3

ACC 422 Week 1 Individual Disclosure Analysis Paper
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Answer 3

ACC 422 Week 1 Individual Disclosure Analysis Paper
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Select a publicly held company to use as the basis for this assignment.

Research your selected company and acquire the company’s most recent financial statements using the Internet.

Prepare a 700- to 1,050-word paper analyzing the disclosures contained within the notes to the financial statements related to cash and cash equivalents, receivables, and inventories. Include a list identifying the components of the organization’s cash and cash equivalents.

Format your paper consistent with APA guidelines

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Question 4

ACC 422 Week 2 WileyPLUS Assignment
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Exercise 7-2

Presented below are a number of independent situations.

For each individual situation, determine the amount that should be reported as cash.

1. Checking account balance $929,070; certificate of deposit $1,417,000; cash advance to subsidiary of $992,770; utility deposit paid to gas company $198.
2. Checking account balance $503,630; an overdraft in special checking account at same bank as normal checking account of $20,900; cash held in a bond sinking fund $235,120; petty cash fund $332; coins and currency on hand $1,460.
3. Checking account balance $606,360; postdated check from a customer $11,450; cash restricted due to maintaining compensating balance requirement of $119,770; certified check from customer $9,610; postage stamps on hand $642.
4. Checking account balance at bank $46,660; money market balance at mutual fund (has checking privileges) $49,520; NSF check received from customer $845.
5. Checking account balance $703,110; cash restricted for future plant expansion $516,120; short-term Treasury bills $187,700; cash advance received from customer $986 (not included in checking account balance); cash advance of $7,540 to company executive, payable on demand; refundable deposit of $29,900 paid to federal government to guarantee performance on construction contract.

Exercise 7-8

At the end of 2012, Sorter Company has accounts receivable of $854,470 and an allowance for doubtful accounts of $47,360. On January 16, 2013, Sorter Company determined that its receivable from Ordonez Company of $6,240 will not be collected, and management authorized its write-off.

(a) Prepare the journal entry for Sorter Company to write off the Ordonez receivable. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)
(b) What is the net realizable value of Sorter Company’s accounts receivable before the write-off of the Ordonez receivable?
(c) What is the net realizable value of Sorter Company’s accounts receivable after the write-off of the Ordonez receivable?

Exercise 8-5

Werth Company asks you to review its December 31, 2012, inventory values and prepare the necessary adjustments to the books. The following information is given to you.

1. Werth uses the periodic method of recording inventory. A physical count reveals $348,107 of inventory on hand at December 31, 2012.
2. Not included in the physical count of inventory is $15,442 of merchandise purchased on December 15 from Browser. This merchandise was shipped f.o.b. shipping point on December 29 and arrived in January. The invoice arrived and was recorded on December 31.
3. Included in inventory is merchandise sold to Bubbey on December 30, f.o.b. destination. This merchandise was shipped after it was counted. The invoice was prepared and recorded as a sale on account for $18,970 on December 31. The merchandise cost $10,893, and Bubbey received it on January 3.
4. Included in inventory was merchandise received from Dudley on December 31 with an invoice price of $23,164. The merchandise was shipped f.o.b. destination. The invoice, which has not yet arrived, has not been recorded.
5. Not included in inventory is $12,656 of merchandise purchased from Minsky Industries. This merchandise was received on December 31 after the inventory had been counted. The invoice was received and recorded on December 30.
6. Included in inventory was $15,469 of inventory held by Werth on consignment from Jackel Industries.
7. Included in inventory is merchandise sold to Sims f.o.b. shipping point. This merchandise was shipped after it was counted. The invoice was prepared and recorded as a sale for $28,010 on December 31. The cost of this merchandise was $17,073, and Sims received the merchandise on January 5.
8. Excluded from inventory was a carton labeled “Please accept for credit.” This carton contains merchandise costing $2,223 which had been sold to a customer for $3,853. No entry had been made to the books to reflect the return, but none of the returned merchandise seemed damaged.
   (a) Determine the proper inventory balance for Werth Company at December 31, 2012.

(b) Prepare any correcting entries to adjust inventory to its proper amount at December 31, 2012. Assume the books have not been closed. (If no entry is required, select “No entry” for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Exercise 8-14

LoBianco Company’s record of transactions for the month of April was as follows.
Purchases Sales
April 1 (balance on hand) 774 @ $5.0 April 3 645 @ $8
4 1,935 @ 5.2 9 1,677 @ 8
8 1,032 @ 5.5 11 774 @ 10
13 1,548 @ 5.8 23 1,548 @ 10
21 903 @ 5.9 27 1,161 @ 13
29 645 @ 6.2 5,805
6,837

Calculate average cost per unit. (Round average cost per unit to 2 decimal places, e.g. $2.76.)

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Question 5

ACC 422 Week 2 Learning Team Assignments From the Text
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Resource: Intermediate Accounting
Prepare written responses to the following assignments from the text:

• Ch. 7: Problem P7-10
• Ch. 8: Exercise E8-25

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Question 6

ACC 422 Week 3 WileyPLUS Assignment
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Exercise 9-1
The inventory of Oheto Company on December 31, 2013, consists of the following items.
Part No.

Quantity

Cost per Unit

Cost to Replace per Unit

110

620

$126

$133

111

1,140

80

69

112

580

106

101

113

230

226

239

120

450

273

277

121

1,650

21

19

122

330

319

313

Part No. 121 is obsolete and has a realizable value of $0.7 each as scrap.

(a) Determine the inventory as of December 31, 2013, by the lower-of-cost-or-market method, applying this method directly to each item.
(b) Determine the inventory by the lower-of-cost-or-market method, applying the method to the total of the inventory.

Exercise 9-12
Astaire Company uses the gross profit method to estimate inventory for monthly reporting purposes. Presented below is information for the month of May.

Inventory, May 1
$ 171,000

Purchases (gross)
655,400

Freight-in
31,400

Sales
1,057,500

Sales returns
82,500

Purchase discounts
12,990

(a) Compute the estimated inventory at May 31, assuming that the gross profit is 25% of sales.
(b) Compute the estimated inventory at May 31, assuming that the gross profit is 25% of cost.

Exercise 10-5
Allegro Supply Company, a newly formed corporation, incurred the following expenditures related to Land, to Buildings, and to Machinery and Equipment.http://edugen.wiley.com/edugen/art2/common/pixel.gif
Abstract company’s fee for title search
$1,752

Architect’s fees
10,683

Cash paid for land and dilapidated building thereon
310,040

Removal of old building
$67,400

Less: Salvage
18,535

48,865

Interest on short-term loans during construction
24,938

Excavation before construction for basement
64,030

Machinery purchased (subject to 2% cash discount, which was not taken)				
219,050

Freight on machinery purchased
4,516

Storage charges on machinery, necessitated by noncompletion of
building when machinery was delivered
7,347

New building constructed (building construction took 6 months from
date of purchase of land and old building)
1,634,450

Assessment by city for drainage project
5,392

Hauling charges for delivery of machinery from storage to new building
2,089

Installation of machinery
6,740

Trees, shrubs, and other landscaping after completion of building
(permanent in nature)
18,198

Determine the amounts that should be debited to Land, to Buildings, and to Machinery and Equipment. Assume the benefits of capitalizing interest during construction exceed the cost of implementation.

Exercise 10-12
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Below are transactions related to Impala Company.

(a) The City of Pebble Beach gives the company 5 acres of land as a plant site. The fair value of this land is determined to be $90,900.
(b) 14,000 shares of common stock with a par value of $52 per share are issued in exchange for land and buildings. The property has been appraised at a fair value of $909,000, of which $186,500 has been allocated to land and $722,500 to buildings. The stock of Impala Company is not listed on any exchange, but a block of 100 shares was sold by a stockholder 12 months ago at $68 per share, and a block of 200 shares was sold by another stockholder 18 months ago at $60 per share.
(c) No entry has been made to remove from the accounts for Materials, Direct Labor, and Overhead the amounts properly chargeable to plant asset accounts for machinery constructed during the year. The following information is given relative to costs of the machinery constructed.

Materials used
$12,880

Factory supplies used
970

Direct labor incurred
17,030

Additional overhead (over regular) caused by construction of
machinery, excluding factory supplies used
2,570

Fixed overhead rate applied to regular manufacturing operations
60% of direct labor cost

Cost of similar machinery if it had been purchased from
outside suppliers
45,020

Prepare journal entries on the books of Impala Company to record these transactions. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

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Question 7

ACC 422 Week 3 Learning Team Assignments From the Text
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Answer 7

ACC 422 Week 3 Learning Team Assignments From the Text
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Resource: Intermediate Accounting
Prepare written responses to the following assignments from the text:

• Ch. 9: Problem P9-9
• Ch. 10: Problem P10-8

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Question 8

ACC 422 Week 3 Individual Assignments From the Text
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Answer 8

ACC 422 Week 3 Individual Assignments From the Text
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Resource: Intermediate Accounting
Prepare written responses to the following assignments from the text:

• Ch. 9: Exorcices E9-1, E9-12, & E9-19
• Ch. 10: Exercises E10-5 & E10-12

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Question 9

ACC 422 Week 4 Learning Team Assignments From the Text
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Answer 9

ACC 422 Week 4 Learning Team Assignments From the Text
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Resource: Intermediate Accounting
Prepare written responses to the following assignments from the text:

• Ch. 11: Exercise E11-18 & Problem P11-10
• Ch. 12: Problem P12-3

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Question 10

ACC 422 Week 4 WileyPLUS Assignment
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Exercise 11-4
Wenner Furnace Corp. purchased machinery for $650,070 on May 1, 2012. It is estimated that it will have a useful life of 10 years, salvage value of $34,950, production of 559,200 units, and working hours of 25,000. During 2013, Wenner Corp. uses the machinery for 2,650 hours, and the machinery produces 59,415 units.

From the information given, compute the depreciation charge for 2013 under each of the following methods. (Round answers to 0 decimal places, e.g. $45,892.)

Problem 11-6
Conan O’Brien Logging and Lumber Company owns 3,200 acres of timberland on the north side of Mount Leno, which was purchased in 2000 at a cost of $640 per acre. In 2012, O’Brien began selectively logging this timber tract. In May of 2012, Mount Leno erupted, burying the timberland of O’Brien under a foot of ash. All of the timber on the O’Brien tract was downed. In addition, the logging roads, built at a cost of $159,000, were destroyed, as well as the logging equipment, with a net book value of $323,200.

At the time of the eruption, O’Brien had logged 20% of the estimated 550,000 board feet of timber. Prior to the eruption, O’Brien estimated the land to have a value of $260 per acre after the timber was harvested. O’Brien includes the logging roads in the depletion base.

O’Brien estimates it will take 3 years to salvage the downed timber at a cost of $707,400. The timber can be sold for pulp wood at an estimated price of $3 per board foot. The value of the land is unknown, but must be considered nominal due to future uncertainties.

(a) Determine the depletion cost per board foot for the timber harvested prior to the eruption of Mount Leno. (Round per unit answer to 2 decimal places, e.g. 0.45.)
(b) Prepare the journal entry to record the depletion prior to the eruption. (Round per unit answer to 2 decimal places, e.g. 0.45 for computational purpose and final answer to 0 decimal places, e.g. $45,892. If no entry is required, select “No entry” for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
(c) If this tract represents approximately half of the timber holdings of O’Brien, determine the amount of the extraordinary loss due to the eruption of Mount Leno for the year ended December 31, 2012.

Exercise 12-16
Margaret Avery Company from time to time embarks on a research program when a special project seems to offer possibilities. In 2011, the company expends $339,820 on a research project, but by the end of 2011 it is impossible to determine whether any benefit will be derived from it.

(a) The project is completed in 2012, and a successful patent is obtained. The R&D costs to complete the project are $132,070. The administrative and legal expenses incurred in obtaining patent number 472-1001-84 in 2012 total $35,000. The patent has an expected useful life of 5 years. Record these costs in journal entry form. Also, record patent amortization (full year) in 2012. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
(b) In 2013, the company successfully defends the patent in extended litigation at a cost of $52,000, thereby extending the patent life to December 31, 2020. What is the proper way to account for this cost? Also, record patent amortization (full year) in 2013. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Problem 12-1

Reichenbach Co., organized in 2011, has set up a single account for all intangible assets. The following summary discloses the debit entries that have been recorded during 2012 and 2013.
Intangible Assets
7/1/12 8-year franchise; expiration date 6/30/19 $57,520
10/1/12 Advance payment on laboratory space (2-year lease) 25,320
12/31/12 Net loss for 2011 including state incorporation fee, $1,560,
and related legal fees of organizing, $4,700 (all fees incurred in 2011) 15,170
1/2/13 Patent purchased (10-year life) 88,020
3/1/13 Cost of developing a secret formula (indefinite life) 71,390
4/1/13 Goodwill purchased (indefinite life) 279,860
6/1/13 Legal fee for successful defense of patent purchased above 13,340
9/1/13 Research and development costs 154,400

Prepare the necessary entries to clear the Intangible Assets account and to set up separate accounts for distinct types of intangibles. Make the entries as of December 31, 2013, recording any necessary amortization and reflecting all balances accurately as of that date. (Ignore income tax effects.) (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round all answers to 0 decimal places, e.g. 8,564.)

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Question 11

ACC 422 Week 5 Learning Team Problem Presentation
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Answer 11

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P13 – 4

Prepare a 5- to 10-minute oral presentation accompanied by a 7- to 9-slide Microsoft® PowerPoint® presentation illustrating your team’s solution to the assigned problem.

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Question 12

ACC 422 Week 5 WileyPLUS Assignment
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Problem 13-9

Sycamore Candy Company offers a CD single as a premium for every 5 candy bar wrappers presented by customers together with $3.35. The candy bars are sold by the company to distributors for 30 cents each. The purchase price of each CD to the company is $3.10; in addition, it costs 50 cents to mail each CD. The results of the premium plan for the years 2012 and 2013 are as follows. (All purchases and sales are for cash.)

                                                                   2012        2013 CDs purchased                                            257,500        339,900 Candy bars sold                                          2,970,900      2,801,800 Wrappers redeemed                                  1,236,000       1,545,000 2012 wrappers expected to be redeemed in 2013        298,700 2013 wrappers expected to be redeemed in 2014                360,500

(a) Prepare the journal entries that should be made in 2012 and 2013 to record the transactions related to the premium plan of the Sycamore Candy Company. (If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
(b) Indicate the amounts for each accounts, and classifications of the items related to the premium plan that would appear on the balance sheet and the income statement at the end of 2012 and 2013.

Exercise 13-13 (Essay)

Presented below are three independent situations. Answer the question at the end of each situation.

1. During 2012, Maverick Inc. became involved in a tax dispute with the IRS. Maverick’s attorneys have indicated that they believe it is probable that Maverick will lose this dispute. They also believe that Maverick will have to pay the IRS between $800,000 and $1,400,000. After the 2012 financial statements were issued, the case was settled with the IRS for $1,200,000. What amount, if any, should be reported as a liability for this contingency as of December 31, 2012?
2. On October 1, 2012, Holmgren Chemical was identified as a potentially responsible party by the Environmental Protection Agency. Holmgren’s management along with its counsel have concluded that it is probable that Holmgren will be responsible for damages, and a reasonable estimate of these damages is $6,000,000. Holmgren’s insurance policy of $9,000,000 has a deductible clause of $500,000. How should Holmgren Chemical report this information in its financial statements at December 31, 2012?
3. Shinobi Inc. had a manufacturing plant in Darfur, which was destroyed in the civil war. It is not certain who will compensate Shinobi for this destruction, but Shinobi has been assured by governmental officials that it will receive a definite amount for this plant. The amount of the compensation will be less than the fair value of the plant but more than its book value. How should the contingency be reported in the financial statements of Shinobi Inc.?

Exercise 14-22
On December 31, 2012, the American Bank enters into a debt restructuring agreement with Barkley Company, which is now experiencing financial trouble. The bank agrees to restructure a 14%, issued at par, $3,167,000 note receivable by the following modifications:
1. Reducing the principal obligation from $3,167,000 to $2,533,600.
2. Extending the maturity date from December 31, 2012, to January 1, 2016.
3. Reducing the interest rate from 14% to 10%.

Barkley pays interest at the end of each year. On January 1, 2016, Barkley Company pays $2,533,600 in cash to Firstar Bank.

(a) Will the gain recorded by Barkley be equal to the loss recorded by American Bank under the debt restructuring?
(b) Can Barkley Company record a gain under the term modification mentioned above?
(c) Assuming that the interest rate Barkley should use to compute interest expense in future periods is 1.4276%, prepare the interest payment schedule of the note for Barkley Company after the debt restructuring. (Round answers to 0 decimal places, e.g. $38,548.)
(d) Prepare the interest payment entry for Barkley Company on December 31, 2014. (Round answers to 0 decimal places, e.g. $38,548. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
(e) What entry should Barkley make on January 1, 2016? (Round answers to 0 decimal places, e.g. $38,548. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Exercise 21-7

On January 1, 2012, Palmer Company leased equipment to Woods Corporation. The following information pertains to this lease.

1. The term of the noncancelable lease is 6 years, with no renewal option. The equipment reverts to the lessor at the termination of the lease.
2. Equal rental payments are due on January 1 of each year, beginning in 2012.
3. The fair value of the equipment on January 1, 2012, is $235,200, and its cost is $199,920.
4. The equipment has an economic life of 8 years, with an unguaranteed residual value of $11,510. Woods depreciates all of its equipment on a straight-line basis.
5. Palmer sets the annual rental to ensure an 10% rate of return. Woods’s incremental borrowing rate is 11%, and the implicit rate of the lessor is unknown.
6. Collectibility of lease payments is reasonably predictable, and no important uncertainties surround the amount of costs yet to be incurred by the lessor.

(Both the lessor and the lessee’s accounting period ends on December 31.)
B.) Calculate the amount of the annual rental payment. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.)

C.) Prepare all the necessary journal entries for Woods for 2012. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.)

D.) Prepare all the necessary journal entries for Palmer for 2012. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.)

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Question 13

ACC 422 Week 5 Learning Team Assignments From the Text
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Answer 13

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Resource: Intermediate Accounting
Prepare written responses to the following assignments from the text:

• Ch. 13: Problem P13-4
• Ch. 14: Exercise E14-21
• Ch. 21: Exercise E21-7

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Question 14

ACC 422 Week 5 Individual Assignments From the Text
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Answer 14

ACC 422 Week 5 Individual Assignments From the Text
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Resource: Intermediate Accounting
Prepare written responses to the following assignments listed at the end of each chapter:

• Ch. 13: Exorcices E13-1, E13-7, E13-11, & E13-13
• Ch. 21: Question 3

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Question 15

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Answer 15

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What are the advantages of operating and capital leases? What are the disadvantages? Why would a company pick one over the other?

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Question 16

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What is residual value? What is the implication to the lessee if the residual value is guaranteed or unguaranteed? What is the implication to the lessor?

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Question 17

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What are the criteria for classifying a lease as operating or capital? Why is there a difference between the two? What are the implications of an operating lease versus a capital lease on an entity’s financial statements?

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Question 18

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What are the differences between a direct-financing and a sales-type lease for a lessor? Why would a lessor provide direct-financing to a lessee? What types of organizations provide direct-financing leases?

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Question 19

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Answer 20

ACC 422 Week 4 Individual Assignments From the Text
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Resource: Intermediate Accounting
Prepare written responses to the following assignments from the text:

• Ch. 11: Exercises E11-4 & E11-11
• Ch. 12: Exercises E12-6 & E12-16

Prepare a response to the following questions:

• What are at least four depreciation methods that are available to a company?
• What are the similarities and differences?
• Why does a company select one method over another?

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What is a bond? What are some features of a bond? How do you value bonds? What factors can affect that value?

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What is a contingency? Why are contingencies important to users of financial statements? What are the criteria for recording contingencies? Should companies record a liability for threatened litigation? Explain why or why not.

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What are the criteria for classifying an item as a current liability? What are some examples of current liabilities? Why is it important to classify a portion of long-term debt on a yearly basis as a current liability? What is the implication of misclassifying a liability as current or long-term?

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Why are research and development costs expensed? Is this consistent with how other similar costs are handled? Explain why or why not. Should research and development costs be expensed? Explain why or why not.

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What is an intangible asset? Should all intangible assets be subject to amortization? Explain why or why not. Why are some intangible assets not amortized? What is the implication to the financial statements?

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What are the different methods used to calculate depreciation? How does a company decide which method it should utilize? How does its choice affect the financial statements? Should companies standardize the method of depreciation to enhance comparability? Explain your answer.

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What is the purpose of depreciation? Does the book value of a fixed asset (cost minus accumulated depreciation) communicate to a user what the asset is worth? Explain why or why not. Should the financial statements reflect the value of fixed assets? Explain why or why not.

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Answer 30

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Resource: Intermediate Accounting

Prepare written responses to the following assignments from the text:

Ch. 7: Exercises E7-2 & E7-8

Ch. 8: Question 13 and Exercises E8-5 & E8-14

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Why is it necessary to value inventories using the lower of cost or market concept?

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How do we account for the disposition of fixed assets? What are the differences in how the exchanges of assets are handled, pending on whether they are similar or dissimilar? What is the rationale for these differences? What is the impact to the companies’ financial statements?

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What are the criteria for capitalization of fixed assets? What items are included in the cost of a fixed asset? Should interest be included in the cost of a fixed asset? Explain why or why not.

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Under what circumstances would a company need to estimate its inventory? What are the differences between using the gross profit method and retail inventory method for estimating inventory? Which method of estimation, gross profit or retail inventory, is best? Explain your answer.

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What is the perpetual method of tracking inventory? How does it differ from the periodic method of tracking inventory? Why would a company choose one method over the other method? Which is the best method? Why?

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Which cost flow assumption gives you the highest ending inventory? Why?

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Why is it important to have effective control of cash?

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Consider how an organization must manage cash, receivables, and inventory. Which of the three variables is the most important to manage? Is one more susceptible to fraud and errors than the others? Explain your answer.

How would a misstatement in each affect the organization?

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1) Which of the following is NOT considered cash for financial reporting purposes?

A.  Coin, currency, and available funds B.  Money orders, certified checks, and personal checks C.  Petty cash funds and change funds D.  Postdated checks and I.O.U.’s

2) What is the preferable presentation of accounts receivable from officers, employees, or affiliated companies on a balance sheet?

A.  As assets but separately from other receivables. B.  By means of footnotes only. C.  As offsets to capital. D.  As trade notes and accounts receivable if they otherwise qualify as current assets.

3) Which of the following items should NOT be included in the Cash caption on the balance sheet?

A.  Amounts on deposit in checking account at the bank B.  Checks from other parties presently in the cash register C.  Coins and currency in the cash register D.  Postage stamps on hand

4) Which of the following is a generally accepted method of determining the amount of the adjustment to bad debt expense?

A.  A percentage of accounts receivable NOT adjusted for the balance in the allowance B.  A percentage of sales NOT adjusted for the balance in the allowance C.  A percentage of sales adjusted for the balance in the allowance D.  An amount derived from aging accounts receivable and NOT adjusted for the balance in the allowance

5) Assuming that the ideal measure of short-term receivables in the balance sheet is the discounted value of the cash to be received in the future, failure to follow this practice usually does NOT make the balance sheet misleading because

A.  the amount of the discount is NOT material. B.  the allowance for uncollectible accounts includes a discount element. C.  most short-term receivables are NOT interest-bearing. D.  most receivables can be sold to a bank or factor.

6) Which of the following methods of determining bad debt expense does NOT properly match expense and revenue?

A.  Charging bad debts with an amount derived from aging accounts receivable under the allowance method. B.  Charging bad debts with an amount derived from a percentage of accounts receivable under the allowance method. C.  Charging bad debts with a percentage of sales under the allowance method. D.  Charging bad debts as accounts are written off as uncollectible.

7) The accountant for the Orion Sales Company is preparing the income statement for 2007 and the balance sheet at December 31, 2007. Orion uses the periodic inventory system. The January 1, 2007 merchandise inventory balance will appear

A.  as a deduction in the cost of goods sold section of the income statement and as a current asset on the balance sheet. B.  only as an asset on the balance sheet. C.  only in the cost of goods sold section of the income statement. D.  as an addition in the cost of goods sold section of the income statement and as a current asset on the balance sheet.

8) Belle Co. received merchandise on consignment. As of March 31, Belle had recorded the transaction as a purchase and included the goods in inventory. The effect of this on its financial statements for March 31 would be

A.  net income was correct and current assets and current liabilities were overstated. B.  net income and current liabilities were overstated. C.  no effect. D.  net income, current assets, and current liabilities were overstated.

9) The failure to record a purchase of mer¬chandise on account even though the goods are properly included in the physical inven¬tory results in

A.  an understatement of assets and net income. B.  an understatement of liabilities and an overstatement of owners’ equity. C.  an overstatement of assets and net income. D.  an understatement of cost of goods sold and liabilities and an overstatement of assets.

10) The use of a Purchase Discounts account implies that the recorded cost of a purchased inventory item is its

A.  invoice price plus any purchase discount lost. B.  invoice price less the purchase discount allowable whether taken or not. C.  invoice price. D.  invoice price less the purchase discount taken.

11) All of the following costs should be charged against revenue in the period in which costs are incurred EXCEPT for

A.  costs which will NOT benefit any future period. B.  costs of normal shrinkage and scrap incurred for the manufacture of a product in ending inventory. C.  manufacturing overhead costs for a product manufactured and sold in the same accounting period. D.  costs from idle manufacturing capacity resulting from an unexpected plant shutdown.

12) Which method of inventory pricing best approximates specific identification of the actual flow of costs and units in most manufacturing situations?

A.  First-in, first-out B.  Base stock C.  Average cost D.  Last-in, first-out

13) In no case can “market” in the lower-of-cost-or-market rule be more than

A.  estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal. B.  estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal, an allowance for an approximately normal profit margin, and an adequate reserve for possible future losses. C.  estimated selling price in the ordinary course of business. D.  estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal and an allowance for an approximately normal profit margin.

14) An item of inventory purchased this period for $15.00 has been incorrectly written down to its current replacement cost of $10.00. It sells during the following period for $30.00, its normal selling price, with disposal costs of $3.00 and normal profit of $12.00. Which of the following statements is NOT true?

A.  The current year’s income is understated. B.  Income of the following year will be understated. C.  The cost of sales of the following year will be understated. D.  The closing inventory of the current year is understated.

15) When valuing raw materials inventory at lower-of-cost-or-market, what is the meaning of the term “market”?

A.  Net realizable value less a normal profit margin B.  Discounted present value C.  Net realizable value D.  Current replacement cost

16) The retail inventory method is based on the assumption that the

A.  ratio of gross margin to sales is approximately the same each period. B.  ratio of cost to retail changes at a constant rate. C.  final inventory and the total of goods available for sale contain the same proportion of high-cost and low-cost ratio goods. D.  proportions of markups and markdowns to selling price are the same.

17) In 2006, Lucas Manufacturing signed a contract with a supplier to purchase raw materials in 2007 for $700,000. Before the December 31, 2006 balance sheet date, the market price for these materials dropped to $510,000. The journal entry to record this situation at December 31, 2006 will result in a credit that should be reported

A.  as a current liability. B.  as an appropriation of retained earnings. C.  as a valuation account to Inventory on the balance sheet. D.  on the income statement.

18) When the conventional retail inventory method is used, markdowns are commonly ignored in the computation of the cost to retail ratio because

A.  this tends to give a better approximation of the lower of cost or market. B.  markups are also ignored. C.  there may be no markdowns in a given year. D.  this tends to result in the showing of a normal profit margin in a period when no markdown goods have been sold.

19) Which of the following is NOT a major characteristic of a plant asset?

A.  Acquired for resale B.  Acquired for use C.  Possesses physical substance D.  Yields services over a number of years

20) If a corporation purchases a lot and building and subsequently tears down the building and uses the property as a parking lot, the proper accounting treatment of the cost of the building would depend on

A.  the length of time for which the building was held prior to its demolition. B.  the contemplated future use of the parking lot. C.  the significance of the cost allocated to the building in relation to the combined cost of the lot and building. D.  the intention of management for the property when the building was acquired.

21) The debit for a sales tax properly levied and paid on the purchase of machinery preferably would be a charge to

A.  a separate deferred charge account. B.  miscellaneous tax expense (which includes all taxes other than those on income). C.  the machinery account. D.  accumulated depreciation–machinery.

22) The period of time during which interest must be capitalized ends when

A.  no further interest cost is being incurred. B.  the asset is abandoned, sold, or fully depreciated. C.  the asset is substantially complete and ready for its intended use. D.  the activities that are necessary to get the asset ready for its intended use have begun.

23) Which of the following costs are capitalized for self-constructed assets?

A.  Labor and overhead only B.  Materials and overhead only C.  Materials and labor only D.  Materials, labor, and overhead

24) When computing the amount of interest cost to be capitalized, the concept of “avoidable interest” refers to

A.  a cost of capital charge for stockholders’ equity. B.  that portion of total interest cost which would NOT have been incurred if expenditures for asset construction had NOT been made. C.  the total interest cost actually incurred. D.  that portion of average accumulated expenditures on which no interest cost was incurred.

25) When a plant asset is acquired by issuance of common stock, the cost of the plant asset is properly measured by the

A.  stated value of the stock. B.  par value of the stock. C.  market value of the stock. D.  book value of the stock.

26) When funds are borrowed to pay for construction of assets that qualify for capitalization of interest, the excess funds NOT needed to pay for construction may be temporarily invested in interest-bearing securities. Interest earned on these temporary investments should be

A.  used to reduce the cost of assets being constructed. B.  offset against interest cost incurred during construction. C.  recognized as revenue of the period. D.  multiplied by an appropriate interest rate to determine the amount of interest to be capitalized.

27) Construction of a qualifying asset is started on April 1 and finished on December 1. The fraction used to multiply an expenditure made on April 1 to find weighted-average accumulated expenditures is

    A.  8/12.
B.  8/8.
C.  11/12.
D.  9/12.
28) Which of the following most accurately reflects the concept of depreciation as used in accounting? 

A.  The process of allocating the cost of tangible assets to expense in a systematic and rational manner to those periods expected to benefit from the use of the asset. B.  The process of charging the decline in value of an economic resource to income in the period in which the benefit occurred. C.  An accounting concept that allocates the portion of an asset used up during the year to the contra asset account for the purpose of properly recording the fair market value of tangible assets. D.  A method of allocating asset cost to an expense account in a manner which closely matches the physical deterioration of the tangible asset involved.

29) Which of the following principles best describes the conceptual rationale for the methods of matching depreciation expense with revenues?

A.  Systematic and rational allocation B.  Associating cause and effect C.  Partial recognition D.  Immediate recognition

30) The term “depreciable cost,” or “depreciable base,” as it is used in accounting, refers to

A.  the cost of the asset less the related depreciation recorded to date. B.  the total amount to be charged (debited) to expense over an asset’s useful life. C.  the acquisition cost of the asset. D.  the estimated market value of the asset at the end of its useful life. Explanation:  depreciable cost is total acquisition cost less salvage value

31) Lennon Company purchased a depreciable asset for $200,000. The estimated salvage value is $10,000, and the estimated useful life is 10,000 hours. Lennon used the asset for 1,100 hours in the current year. The activity method will be used for depreciation. What is the depreciation expense on this asset?

A.  $20,900 B.  $190,000 C.  $22,000 D.  $19,000

Calculation: $200,000 – $10,000 = $190,000/10,000 hours = $19/hour x 1,100 hours = $20,900
32) Prentice Company purchased a depreciable asset for $200,000. The estimated salvage value is $20,000, and the estimated useful life is 10 years. The straight-line method will be used for depreciation. What is the depreciation base of this asset?

    A.  $20,000
B.  $180,000
C.  $200,000
D.  $18,000
Calculation: $200,000 – $20,000 = $180,000

33) Pine Company purchased a depreciable asset for $360,000. The estimated salvage value is $24,000, and the estimated useful life is 8 years. The double-declining balance method will be used for depreciation. What is the depreciation expense for the second year on this asset?

A.  $63,000 B.  $67,500 C.  $90,000 D.  $42,000

Calculation: DDB rate = 1/8 x 2 = 25% x $360,000 =
1st year dep $90,000; 2nd year dep = $360,000 – 90,000 x 25% = $67,500
34) Under current accounting practice, intangible assets are classified as

A.  limited-life or indefinite-life. B.  specifically identifiable or goodwill-type. C.  legally restricted or goodwill-type. D.  amortizable or unamortizable.

35) Factors considered in determining an intangible asset’s useful life include all of the following EXCEPT

A.  any legal or contractual provisions that may limit the useful life. B.  any provisions for renewal or extension of the asset’s legal life C.  the amortization method used. D.  the expected use of the asset.

36) Which of the following methods of amortization is normally used for intangible assets?

A.  Straight-line B.  Units of production C.  Double-declining-balance D.  Sum-of-the-years’-digits

37) Mining Company acquired a patent on an oil extraction technique on January 1, 2006 for $5,000,000. It was expected to have a 10 year life and no residual value. Mining uses straight-line amortization for patents. On December 31, 2007, the expected future cash flows expected from the patent were expected to be $600,000 per year for the next eight years. The present value of these cash flows, discounted at Mining’s market interest rate, is $2,800,000. At what amount should the patent be carried on the December 31, 2007 balance sheet?

A.  $4,800,000 B.  $4,000,000 C.  $2,800,000 D.  $5,000,000

Calculation: $5,000,000/10 years = $500,000/year x 2 years = $1,000,000; $5,000,000 – 1,000,000 = $4,000,000
38) Twilight Corporation acquired End-of-the-World Products on January 1, 2008 for $2,000,000, and recorded goodwill of $375,000 as a result of that purchase. At December 31, 2008, the End-of-the-World Products Division had a fair value of $1,700,000. The net identifiable assets of the Division (excluding goodwill) had a fair value of $1,450,000 at that time. What amount of loss on impairment of goodwill should Twilight record in 2008?

A.  $125,000 B.  $175,000 C.  $300,000 D.  $ -0-

Calculation: $375,000 – ($1,700,000 – $1,450,000) = $125,000
39) General Products Company bought Special Products Division in 2006 and appropriately booked $250,000 of goodwill related to the purchase. On December 31, 2007, the fair value of Special Products Division is $2,000,000 and it is carried on General Product’s books for a total of $1,700,000, including the goodwill. An analysis of Special Products Division’s assets indicates that goodwill of $200,000 exists on December 31, 2007. What goodwill impairment should be recognized by General Products in 2007?

A.  $200,000. B.  $50,000. C.  $300,000. D.  $0.

40) Easton Company and Lofton Company were combined in a purchase transaction. Easton was able to acquire Lofton at a bargain price. The sum of the market or appraised values of identifiable assets acquired less the fair value of liabilities assumed exceeded the cost to Easton. After revaluing noncurrent assets to zero, there was still some “negative goodwill.” Proper accounting treatment by Easton is to report the amount as

A.  part of current income in the year of combination. B.  a deferred credit and amortize it. C.  paid-in capital. D.  an extraordinary gain.

41) Goodwill

A.  generated internally should NOT be capitalized unless it is measured by an individual independent of the enterprise involved. B.  is easily computed by assigning a value to the individual attributes that comprise its existence. C.  exists in any company that has earnings that differ from those of a competitor. D.  represents a unique asset in that its value can be identified only with the business as a whole.

42) The reason goodwill is sometimes referred to as a master valuation account is because

A.  it represents the purchase price of a business that is about to be sold. B.  it is the difference between the fair market value of the net tangible and identifiable intangible assets as compared with the purchase price of the acquired business. C.  it is the only account in the financial statements that is based on value, all other accounts are recorded at an amount other than their value. D.  the value of a business is computed without consideration of goodwill and then goodwill is added to arrive at a master valuation.

43) Which of the following items is a current liability?

A.  Bonds (for which there is an adequate sinking fund properly classified as a long-term investment) due in three months. B.  Bonds due in three years. C.  Bonds to be refunded when due in eight months, there being no doubt about the marketability of the refunding issue. D.  Bonds (for which there is an adequate appropriation of retained earnings) due in eleven months.

44) If a short-term obligation is excluded from current liabilities because of refinancing, the footnote to the financial statements describing this event should include all of the following information EXCEPT

A.  a general description of the financing arrangement. B.  the terms of the new obligation incurred or to be incurred. C.  the number of financing institutions that refused to refinance the debt, if any. D.  the terms of any equity security issued or to be issued.

45) Stock dividends distributable should be classified on the

A.  income statement as an expense. B.  balance sheet as an asset. C.  balance sheet as an item of stockholders’ equity. D.  balance sheet as a liability.

46) A company offers a cash rebate of $1 on each $4 package of light bulbs sold during 2007. Historically, 10% of customers mail in the rebate form. During 2007, 4,000,000 packages of light bulbs are sold, and 140,000 $1 rebates are mailed to customers. What is the rebate expense and liability, respectively, shown on the 2007 financial statements dated December 31?

A.  $400,000; $400,000 B.  $400,000; $260,000 C.  $140,000; $260,000 D.  $260,000; $260,000

Calculation: 4,000,000 x $1 = $4,000,000 x 10% = $400,000 ; $400,000 – (140,000 x $1) = $260,000
47) A company offers a cash rebate of $1 on each $4 package of batteries sold during 2007. Historically, 10% of customers mail in the rebate form. During 2007, 6,000,000 packages of batteries are sold, and 210,000 $1 rebates are mailed to customers. What is the rebate expense and liability, respectively, shown on the 2007 financial statements dated December 31?

A.  $600,000; $600,000 B.  $600,000; $390,000 C.  $210,000; $390,000 D.  $390,000; $390,000

Calculation: 4,000,000 x $1 = $6,000,000 x 10% = $600,000 ; $600,000 – (210,000 x $1) = $390,000

48) Wellman Company self insures its property for fire and storm damage. If the company were to obtain insurance on the property, it would cost them $1,000,000 per year. The company estimates that on average it will incur losses of $800,000 per year. During 2007, $350,000 worth of losses were sustained. How much total expense and/or loss should be recognized by Wellman Company for 2007?

A.  $350,000 in losses and no insurance expense B.  $350,000 in losses and $450,000 in insurance expense C.  $0 in losses and $1,000,000 in insurance expense D.  $0 in losses and $800,000 in insurance expense

49) A contingency can be accrued when

A.  it is certain that funds are available to settle the disputed amount. B.  an asset may have been impaired. C.  it is probable that an asset has been impaired or a liability incurred even though the amount of the loss cannot be reasonably estimated. D.  the amount of the loss can be reasonably estimated and it is probable that an asset has been impaired or a liability incurred.

50) Which of the following contingencies need NOT be disclosed in the financial statements or the notes thereto?

A.  Probable losses NOT reasonably estimable B.  All of these must be disclosed. C.  Environmental liabilities that cannot be reasonably estimated D.  Guarantees of indebtedness of others

51) Mark Ward is a farmer who owns land which borders on the right-of-way of the Northern Railroad. On August 10, 2007, due to the admitted negligence of the Railroad, hay on the farm was set on fire and burned. Ward had had a dispute with the Railroad for several years concerning the ownership of a small parcel of land. The representative of the Railroad has offered to assign any rights which the Railroad may have in the land to Ward in exchange for a release of his right to reimbursement for the loss he has sustained from the fire. Ward appears inclined to accept the Railroad’s offer. The Railroad’s 2007 financial statements should include the following related to the incident:

A.  recognition of a loss and creation of a liability for the value of the land. B.  disclosure in note form only. C.  recognition of a loss only. D.  creation of a liability only.

52) If bonds are issued initially at a premium and the effective-interest method of amortization is used, interest expense in the earlier years will be

A.  greater than if the straight-line method were used. B.  less than if the straight-line method were used. C.  greater than the amount of the interest payments. D.  the same as if the straight-line method were used.

53) An example of an item which is NOT a liability is

A.  dividends payable in stock. B.  the portion of long-term debt due within one year. C.  advances from customers on contracts. D.  accrued estimated warranty costs.

54) Bonds for which the owners’ names are NOT registered with the issuing corporation are called

    A.  bearer bonds.
B.  secured bonds.
C.  term bonds.
D.  debenture bonds.
55) Which of the following best describes current practice in accounting for leases? 

A.  Leases are NOT capitalized. B.  All leases are capitalized. C.  Leases similar to installment purchases are capitalized. D.  All long-term leases are capitalized.

56) Minimum lease payments may include a

A.  penalty for failure to renew. B.  any of these. C.  bargain purchase option. D.  guaranteed residual value.

57) Which of the following is a correct statement of one of the capitalization criteria?

A.  The lease transfers ownership of the property to the lessor. B.  The lease term is equal to or more than 75% of the estimated economic life of the leased property. C.  The lease contains a purchase option. D.  The minimum lease payments (excluding executory costs) equal or exceed 90% of the fair value of the leased property.

58) In a lease that is appropriately recorded as a direct-financing lease by the lessor, unearned income

A.  should be amortized over the period of the lease using the interest method. B.  does NOT arise. C.  should be amortized over the period of the lease using the straight-line method. D.  should be recognized at the lease’s expiration.

59) In order to properly record a direct-financing lease, the lessor needs to know how to calculate the lease receivable. The lease receivable in a direct-financing lease is best defined as

A.  the amount of funds the lessor has tied up in the asset which is the subject of the direct-financing lease. B.  the present value of minimum lease payments. C.  the difference between the lease payments receivable and the fair market value of the leased property. D.  the total book value of the asset less any accumulated depreciation recorded by the lessor prior to the lease agreement.

60) The amount to be recorded as the cost of an asset under capital lease is equal to the

A.  present value of the minimum lease payments. B.  present value of the minimum lease payments plus the present value of any unguaranteed residual value. C.  present value of the minimum lease payments or the fair value of the asset, whichever is lower. D.  carrying value of the asset on the lessor’s books

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