Danville Corporation buys a truck for $52,000 and leases it to Viceroy for 8 years. At the end of that time, Viceroy can buy the truck for $7,000 in cash. Which of the following is not true? a. If this purchase option is viewed as a bargain, Danville should record the $7,000 as a future cash flow in accounting for the lease even though it is not guaranteed. b. Unless the purchase option is viewed as a bargain, Danville cannot account for this lease as a capital lease. c. The purchase option cannot be viewed as a bargain unless it is significantly below the expected fair value of the truck on that date. d. If this purchase option is viewed as a bargain, Danville's profit to be recognized in the first year will be increased.
Danville Corporation buys a truck for $52,000 and leases it to Viceroy for 8 years. At the end of that time, Viceroy can buy the truck for $7,000 in cash. Which of the following is not true? a. If this purchase option is viewed as a bargain, Danville should record the $7,000 as a future cash flow in accounting for the lease even though it is not guaranteed. b. Unless the purchase option is viewed as a bargain, Danville cannot account for this lease as a capital lease. c. The purchase option cannot be viewed as a bargain unless it is significantly below the expected fair value of the truck on that date. d. If this purchase option is viewed as a bargain, Danville's profit to be recognized in the first year will be increased.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
None
![Danville Corporation buys a truck for $52,000 and leases it to Viceroy
for 8 years. At the end of that time, Viceroy can buy the truck for
$7,000 in cash. Which of the following is not true?
a. If this purchase option is viewed as a bargain, Danville should
record the $7,000 as a future cash flow in accounting for the lease
even though it is not guaranteed.
b. Unless the purchase option is viewed as a bargain, Danville cannot
account for this lease as a capital lease.
c. The purchase option cannot be viewed as a bargain unless it is
significantly below the expected fair value of the truck on that date.
d. If this purchase option is viewed as a bargain, Danville's profit to be
recognized in the first year will be increased.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff7b6eb03-797a-4fda-bfe2-6be56aea6464%2Fbaf3a5b9-ac4f-4740-bd19-cabc9f094956%2Fsjylaq2i_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Danville Corporation buys a truck for $52,000 and leases it to Viceroy
for 8 years. At the end of that time, Viceroy can buy the truck for
$7,000 in cash. Which of the following is not true?
a. If this purchase option is viewed as a bargain, Danville should
record the $7,000 as a future cash flow in accounting for the lease
even though it is not guaranteed.
b. Unless the purchase option is viewed as a bargain, Danville cannot
account for this lease as a capital lease.
c. The purchase option cannot be viewed as a bargain unless it is
significantly below the expected fair value of the truck on that date.
d. If this purchase option is viewed as a bargain, Danville's profit to be
recognized in the first year will be increased.
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Recommended textbooks for you
![FINANCIAL ACCOUNTING](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Accounting](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
![Accounting Information Systems](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
![FINANCIAL ACCOUNTING](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Accounting](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
![Accounting Information Systems](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
![Horngren's Cost Accounting: A Managerial Emphasis…](https://www.bartleby.com/isbn_cover_images/9780134475585/9780134475585_smallCoverImage.gif)
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
![Intermediate Accounting](https://www.bartleby.com/isbn_cover_images/9781259722660/9781259722660_smallCoverImage.gif)
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
![Financial and Managerial Accounting](https://www.bartleby.com/isbn_cover_images/9781259726705/9781259726705_smallCoverImage.gif)
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education