Each of the four independent situations below describes a lease requiring annual lease payments of $30,000. Situation 1 Situation 2 Situation 3 Situation 4
Lease term (years) 4 4 4 4
Asset's useful life (years) 6 6 5 6
Asset's fair value $132,000 $114,000 $129,000 $115,000
Bargain purchase option? No No Yes No
Annual lease payments Beg. of yr. End of yr. Beg. of yr. End of yr.
Lessor's implicit rate (known by lessee) 5% 6% 6% 5%
Lessee's incremental borrowing rate 5% 5% 5% 5%

Required:
For each situation, determine the appropriate lease classification by the lessee and indicate why?

Jordan, inc. sells fireworks. the company’s marketing director developed the following cost of goods sold budget for april, may, june, and july. april may june july budgeted cost of goods sold $62,000 $72,000 $82,000 $88,000 jordan had a beginning inventory balance of $3,000 on april 1 and a beginning balance in accounts payable of $14,600. the company desires to maintain an ending inventory balance equal to 15 percent of the next period’s cost of goods sold. jordan makes all purchases on account. the company pays 65 percent of accounts payable in the month of purchase and the remaining 35 percent in the month following purchase. required prepare an inventory purchases budget for april, may, and june. determine the amount of ending inventory jordan will report on the end-of-quarter pro forma balance sheet. prepare a schedule of cash payments for inventory for april, may, and june. determine the balance in accounts payable jordan will report on the end-of-quarter pro forma balance sheet.

Gulliver travel agencies thinks interest rates in europe are low. the firm borrows euros at 5 percent for one year. during this time period the dollar falls 11 percent against the euro. what is the effective interest rate on the loan for one year? (consider the 11 percent fall in the value of the dollar as well as the interest payment.)

Because the demand for wheat tends to be inelastic. true or false