An asset with a market value of $100,000 is leased on 1/1/x1.

The lease is a capital

lease for both parties. Five annual lease payments are due each December 31
beginning 12/31/x1. The unguaranteed residual value on 12/31/x5, the last day of the
lease term, is estimated at $40,000. The lessor's implicit interest rate is 8%. Compute
the lessor's net lease receivable immediately after the first lease payment is received.
Present value factors for 5 years at 8% are: 3.99271 and 0.68058.
The lease payment (LP) is computed as: $100,000 = LP(3.99271) + $40,000(0.68058).
Solving, LP = $18,227. The initial gross lease receivable balance is 5($18,227) $40,000
or $131,135. Unearned interest is recorded for $31,135 ($131,135 - $100,000) at
inception. Interest revenue for the first year is $8,000 (= $100,000 x .08). The journal
entry for the first lease payment is: dr. Cash $18,227, dr. unearned interest $8,000, cr.
interest revenue $8,000, cr. lease receivable $18,227. The decrease in net lease
receivable is $18,227 - $8,000 or $10,227. The ending net lease receivable at year end
is $100,000 - $10,227 = $89,7
Choose the correct statement concerning transactions involving the issuance of shares
in payment of obligations for goods and services.
A. When the value of shares to be issued is fixed, the number of shares to be issued is
variable.
B. When the value of shares to be issued is fixed, the number of shares to be issued is
fixed.
C. When the number of shares to be issued is fixed, the expense to be recorded is
variable.

D. When the number of shares to be issued is fixed, the issuing firm records a liability.
The value of the shares to be issued is the value of the contract or the agreed-upon
value of the goods and services for the two parties. If the stock price changes between
the time of contracting and the delivery of the goods or services, the number of shares
changes in order to provide that fixed value.
A firm selling put options to sell the firm's stock
A. Increases owners' equity for the fair value of the options.
B. Does not recognize any change in its financial position at sale of the options.
C. Increases a liability for the fair value of the options.
D. Records an expense equal to the fair value of the options.
The liability will be extinguished when the option is exercised or when it expires.c
Renwood, Inc. contracted for services to be provided over a period of time in return for
2,000 shares of Renwood's $5 par common stock when the service is completed. At the
time, Renwood stock was selling for $10 per share. When the service was completed,
Renwood's stock price was $12 per share. Therefore, Renwood
A. Recognizes $24,000 of expense.
B. Increases the common stock account $12,000.
C. Increases contributed capital in excess of par $10,000.
D. Credits a liability for $20,000.
The total owners' equity increase of $20,000 (2,000 shares x $10) is recorded at
signing. Of that amount, the common stock account will receive $10,000 (2,000 shares
x $5 par). Therefore, the remainder ($10,000) is allocated to contributed capital in
excess of par. Subsequent changes in stock price do not change the total amount of OE
recorded.
Allam, Inc. contracted for services to be provided over a period of time with full payment
in Allam's $2 par common stock when the service is completed. At the time of the
agreement, Allam stock was trading at $20 per share. The agreed-upon total value of
the contract is $20,000. When the service was completed, Allam's stock price was $25
per share. Therefore, Allam
A. Recognizes $25,000 of expense.
B. Increases the common stock account $1,600.
C. Increases contributed capital in excess of par $23,000.
D. Debits a liability for $25,000.
The value of the stock to be issued is $20,000. At time of issuance, the stock price is
$25. Therefore, 800 shares are issued ($20,000/$25). The par value of the stock is $2,
requiring a credit of $1,600
Yola Co. and Zaro Co. are fuel oil distributors. To facilitate the delivery of oil to their
customers, Yola and Zaro exchanged ownership of 1,200 barrels of oil without
physically moving the oil. Yola paid Zaro $30,000 to compensate for a difference in the
grade of oil.
On the date of the exchange, cost and market values of the oil were as follows:
Yola Co. Zaro Co.
Cost $100,000 $126,000
Market values 120,000 150,000
In Zaro's income statement, what amount of gain should be reported from the exchange
of the oil?
This exchange was made to facilitate a sale of inventory to customers.
Under FAS 153, this is one of the exceptions to measuring exchanges of nonmonetary
assets at market value. In this case, the exchange is measured at book value; no gain
or loss is recognized. The oil received by Zaro would be measured (debited) at book
value ($126,000) less cash received ($30,000), or $96,000. Cash would be debited for
$30,000. The oil exchanged would be credited for $126,000.
No gain or loss is recognized
On January 1, Feld traded a delivery truck and paid $10,000 cash for a tow truck owned
by Baker. The delivery truck had an original cost of $140,000, accumulated depreciation
of $80,000, and an estimated fair value of $90,000. Feld estimated the fair value of
Baker's tow truck to be $100,000. The transaction had commercial substance. What
amount of gain should be recognized by Feld?
The book value of the delivery truck is $60,000 ($140,000 - $80,000). Its fair value is
$90,000. A gain of $30,000 is therefore implied. Cash was paid and the exchange had
commercial substance. Therefore, the gain is fully recognized. If the exchange lacked
commercial substance, no gain would be recognized.
On December 31, 2005, Vey Co. traded equipment with an original cost of $100,000
and accumulated depreciation of $40,000 for productive equipment with a fair value of
$60,000.
In addition, Vey received $30,000 cash in connection with this exchange. There is
commercial substance to the exchange. What should be Vey's carrying amount for the
equipment received at December 31, 2005?
When there is commercial substance to the exchange, the acquired asset is measured
at fair value. In this case, the value is $60,000 as given in the problem. This amount
also equals the fair value of assets given up in the exchange. The implied fair value of
the asset exchanged is $60,000 + $30,000 cash received, or $90,000. The fair value of
assets given up is therefore $90,000 less $30,000 cash received, or $60,000. The full
journal entry for the exchange is: dr. plant asset 60,000; dr. accumulated depreciation,
40,000; debit cash 30,000; credit plant asset 100,000; credit gain, 30,000. The gain
equals the difference between the fair value of the asset exchanged (90,000) and its
book value (60,000).
Bensol Co. and Sable Co. exchanged similar trucks with fair values in excess of
carrying amounts. In addition, Bensol paid Sable to compensate for the difference in
truck values.
The exchange has commercial substance.
As a consequence of the exchange, Sable recognizes
A. A gain equal to the difference between the fair value and carrying amount of the truck
given up.
B. A gain determined by the proportion of cash received to the total consideration.
C. A loss determined by the proportion of cash received to the total consideration.
D. Neither a gain nor a loss.
With commercial substance, the exchange is measured at fair value. The full gain is
recognized and is equal to the difference between the fair value of the asset given up
and its book value.
For example, assume the following values: new asset fair value 20, old asset fair value
26, cash received 6, old asset cost 30, old asset accumulated depreciation 9. The full
entry is: dr. New Truck 20; dr. Accumulated Depreciation 9; dr. Cash 6; cr. Old Truck
30; cr. Gain 5.
The gain equals the old asset's fair value of 26 and its book value of 21 (30 - 9).
olen Co. and Nolse Co. exchanged trucks with fair values in excess of carrying
amounts. In addition, Solen paid Nolse to compensate for the difference in truck values.
The exchange lacks commercial substance.
As a consequence of the exchange, Solen recognizes
A. A gain equal to the difference between the fair value and carrying amount of the truck
given up.
B. A gain determined by the proportion of cash paid to the total consideration.

C. A loss determined by the proportion of cash paid to the total consideration.

D. Neither a gain nor a loss.