LS Inc wants to acquire new market data and quotation system for its new home office. The system receives the information from online services and display the data onscreen or may save it for later retrieval and system also allow customers to make call and can convey current quotes. Cost of the equipment is $ 1,000,000 and if the company wants to purchase the equipment, they can borrow a loan at an interest rate of 10%. Useful life of equipment is 6 years and it comes under 3 years MARCS class or it can purchase a contract of 4 years where $20,000 have to be paid at the beginning of each year and it will be sold after 4 years and the residual value is estimated at $200,000. They thought of opting for leasing which will cost $260,000 and includes maintenance cost. Federal plus state tax is 40%. To identify: Parties to a lease transaction

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Answer 1

Question

Chapter 19, Problem 1MC

(1)

Summary Introduction

Case Summary:

LS Inc wants to acquire new market data and quotation system for its new home office. The system receives the information from online services and display the data onscreen or may save it for later retrieval and system also allow customers to make call and can convey current quotes. Cost of the equipment is $ 1,000,000 and if the company wants to purchase the equipment, they can borrow a loan at an interest rate of 10%.

Useful life of equipment is 6 years and it comes under 3 years MARCS class or it can purchase a contract of 4 years where $20,000 have to be paid at the beginning of each year and it will be sold after 4 years and the residual value is estimated at $200,000. They thought of opting for leasing which will cost $260,000 and includes maintenance cost. Federal plus state tax is 40%.

To identify: Parties to a lease transaction

(2)

Summary Introduction

To classify:

Primary types of leases and its characteristics

(3)

Summary Introduction

To classify:

The leases for tax purposes

(4)

Summary Introduction

To determine:

The effect of leasing on firm’s balance sheet

(5)

Summary Introduction

To determine:

The effect of leasing on firm’s capital structure

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Students have asked these similar questions

(J) Identify the two recognized lease-accounting methods for lessees and distinguish between them. What are the major lessor groups in the United States? Let's discuss the big changes that have occured in accounting for leases. What was the major change? When did they occur? What industries were most impacted and why? What impact did this have on financial ratios?

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?

Identify the CORRECT statement regarding the effect of lease on return on capital employed. Select one: O a. A company is able to improve its return on capital employed (ROCE) by entering into a finance lease for leasing non-current assets rather than borrowing to cover the purchase price of the assets. O b. A company is able to improve its return on capital employed (ROCE) by leasing non-current assets rather than borrowing to cover the purchase price of the assets. O c. A company is unable to improve its return on capital employed (ROCE) by leasing non-current assets rather than borrowing to cover the purchase price of the assets.

Answer 2

Question

Chapter 19, Problem 1MC

(1)

Summary Introduction

Case Summary:

LS Inc wants to acquire new market data and quotation system for its new home office. The system receives the information from online services and display the data onscreen or may save it for later retrieval and system also allow customers to make call and can convey current quotes. Cost of the equipment is $ 1,000,000 and if the company wants to purchase the equipment, they can borrow a loan at an interest rate of 10%.

Useful life of equipment is 6 years and it comes under 3 years MARCS class or it can purchase a contract of 4 years where $20,000 have to be paid at the beginning of each year and it will be sold after 4 years and the residual value is estimated at $200,000. They thought of opting for leasing which will cost $260,000 and includes maintenance cost. Federal plus state tax is 40%.

To identify: Parties to a lease transaction

(2)

Summary Introduction

To classify:

Primary types of leases and its characteristics

(3)

Summary Introduction

To classify:

The leases for tax purposes

(4)

Summary Introduction

To determine:

The effect of leasing on firm’s balance sheet

(5)

Summary Introduction

To determine:

The effect of leasing on firm’s capital structure

Expert Solution & Answer

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Answer 3

Question

Chapter 19, Problem 1MC

(1)

Summary Introduction

Case Summary:

LS Inc wants to acquire new market data and quotation system for its new home office. The system receives the information from online services and display the data onscreen or may save it for later retrieval and system also allow customers to make call and can convey current quotes. Cost of the equipment is $ 1,000,000 and if the company wants to purchase the equipment, they can borrow a loan at an interest rate of 10%.

Useful life of equipment is 6 years and it comes under 3 years MARCS class or it can purchase a contract of 4 years where $20,000 have to be paid at the beginning of each year and it will be sold after 4 years and the residual value is estimated at $200,000. They thought of opting for leasing which will cost $260,000 and includes maintenance cost. Federal plus state tax is 40%.

To identify: Parties to a lease transaction

(2)

Summary Introduction

To classify:

Primary types of leases and its characteristics

(3)

Summary Introduction

To classify:

The leases for tax purposes

(4)

Summary Introduction

To determine:

The effect of leasing on firm’s balance sheet

(5)

Summary Introduction

To determine:

The effect of leasing on firm’s capital structure

Expert Solution & Answer

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Answer 4

Question

Chapter 19, Problem 1MC

(1)

Summary Introduction

Case Summary:

LS Inc wants to acquire new market data and quotation system for its new home office. The system receives the information from online services and display the data onscreen or may save it for later retrieval and system also allow customers to make call and can convey current quotes. Cost of the equipment is $ 1,000,000 and if the company wants to purchase the equipment, they can borrow a loan at an interest rate of 10%.

Useful life of equipment is 6 years and it comes under 3 years MARCS class or it can purchase a contract of 4 years where $20,000 have to be paid at the beginning of each year and it will be sold after 4 years and the residual value is estimated at $200,000. They thought of opting for leasing which will cost $260,000 and includes maintenance cost. Federal plus state tax is 40%.

To identify: Parties to a lease transaction

(2)

Summary Introduction

To classify:

Primary types of leases and its characteristics

(3)

Summary Introduction

To classify:

The leases for tax purposes

(4)

Summary Introduction

To determine:

The effect of leasing on firm’s balance sheet

(5)

Summary Introduction

To determine:

The effect of leasing on firm’s capital structure

Expert Solution & Answer

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Answer 5

Chapter 19, Problem 1MC

(1)

Summary Introduction

Case Summary:

LS Inc wants to acquire new market data and quotation system for its new home office. The system receives the information from online services and display the data onscreen or may save it for later retrieval and system also allow customers to make call and can convey current quotes. Cost of the equipment is $ 1,000,000 and if the company wants to purchase the equipment, they can borrow a loan at an interest rate of 10%.

Useful life of equipment is 6 years and it comes under 3 years MARCS class or it can purchase a contract of 4 years where $20,000 have to be paid at the beginning of each year and it will be sold after 4 years and the residual value is estimated at $200,000. They thought of opting for leasing which will cost $260,000 and includes maintenance cost. Federal plus state tax is 40%.

To identify: Parties to a lease transaction

(2)

Summary Introduction

To classify:

Primary types of leases and its characteristics

(3)

Summary Introduction

To classify:

The leases for tax purposes

(4)

Summary Introduction

To determine:

The effect of leasing on firm’s balance sheet

(5)

Summary Introduction

To determine:

The effect of leasing on firm’s capital structure

Answer 6

Chapter 19, Problem 1MC

(1)

Summary Introduction

Case Summary:

LS Inc wants to acquire new market data and quotation system for its new home office. The system receives the information from online services and display the data onscreen or may save it for later retrieval and system also allow customers to make call and can convey current quotes. Cost of the equipment is $ 1,000,000 and if the company wants to purchase the equipment, they can borrow a loan at an interest rate of 10%.

Useful life of equipment is 6 years and it comes under 3 years MARCS class or it can purchase a contract of 4 years where $20,000 have to be paid at the beginning of each year and it will be sold after 4 years and the residual value is estimated at $200,000. They thought of opting for leasing which will cost $260,000 and includes maintenance cost. Federal plus state tax is 40%.

To identify: Parties to a lease transaction

Answer 7

Chapter 19, Problem 1MC

(1)

Summary Introduction

Case Summary:

LS Inc wants to acquire new market data and quotation system for its new home office. The system receives the information from online services and display the data onscreen or may save it for later retrieval and system also allow customers to make call and can convey current quotes. Cost of the equipment is $ 1,000,000 and if the company wants to purchase the equipment, they can borrow a loan at an interest rate of 10%.

Useful life of equipment is 6 years and it comes under 3 years MARCS class or it can purchase a contract of 4 years where $20,000 have to be paid at the beginning of each year and it will be sold after 4 years and the residual value is estimated at $200,000. They thought of opting for leasing which will cost $260,000 and includes maintenance cost. Federal plus state tax is 40%.

To identify: Parties to a lease transaction

Answer 8

(2)

Summary Introduction

To classify:

Primary types of leases and its characteristics

Answer 9

(2)

Summary Introduction

To classify:

Primary types of leases and its characteristics

Answer 10

(3)

Summary Introduction

To classify:

The leases for tax purposes

Answer 11

(3)

Summary Introduction

To classify:

The leases for tax purposes

Answer 12

(4)

Summary Introduction

To determine:

The effect of leasing on firm’s balance sheet

Answer 13

(4)

Summary Introduction

To determine:

The effect of leasing on firm’s balance sheet

Answer 14

(5)

Summary Introduction

To determine:

The effect of leasing on firm’s capital structure

Answer 15

(5)

Summary Introduction

To determine:

The effect of leasing on firm’s capital structure

Answer 16

Expert Solution & Answer

Answer 17

Expert Solution & Answer

Answer 18

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Answer 19

Ch. 19 - Prob. 1Q Ch. 19 - Distinguish between operating leases and financial...Ch. 19 - Prob. 3Q Ch. 19 - Prob. 4Q Ch. 19 - Prob. 5Q Ch. 19 - Prob. 6Q Ch. 19 - Prob. 8Q Ch. 19 - Prob. 1P Ch. 19 - Prob. 2P Ch. 19 - Prob. 3P

Solution Summary: The author explains the four primary types of leases: operating, financial, and combination.

Videos

To classify:

Primary types of leases and its characteristics

To classify:

The leases for tax purposes

To determine:

The effect of leasing on firm’s balance sheet

To determine:

The effect of leasing on firm’s capital structure

Want to see the full answer?

Chapter 19 Solutions

Solution Summary: The author explains the four primary types of leases: operating, financial, and combination.

Videos

To classify: Primary types of leases and its characteristics

To classify: The leases for tax purposes

To determine: The effect of leasing on firm’s balance sheet

To determine: The effect of leasing on firm’s capital structure

Want to see the full answer?

Chapter 19 Solutions

To classify:

Primary types of leases and its characteristics

To classify:

The leases for tax purposes

To determine:

The effect of leasing on firm’s balance sheet

To determine:

The effect of leasing on firm’s capital structure