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Question
1. Five payments of $26,379.74 (a 9% implicit rate) due at the end each year.2. The fair value of the tractor is $100,000.
3. The lease is nonrenewable and the tractor reverts to Star at the end of the lease term.
4. The tractor has a six-year economic life.
5. Hatfield has an excellent credit rating.
6. Star offers no warranty on the tractor other than the manufacturer's two-year warranty that is handled directly with the manufacturer.
All of the following are true of constructive capitalization except
A. It's a method for making balance sheet data historically correct.
B. It treats all leases as if they were capital leases.
C. The liability is the discounted present value of the stream of minimum operating lease payments.
D. The method makes use of a discount rate that is the weighted average rate implicit in all leases, or the weighted average rate on interest-bearing long-term debt.
Answer
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