1. Which of the following is not a criterion that triggers capital lease recording?
a. Lease covers at least 75 percent of an asset’s life
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b. Lease contains a bargain purchase option
c. Payments cover at least 50 percent of the asset’s fair value
d. Asset transfers to lessee at end of lease
2. Charlotte Company leases a piece of equipment on February 1. The lease covers two years and the life of the equipment is four years. There is no bargain purchase option, the equipment does not transfer to Charlotte at the end of the lease, and the payments do not approximate the fair value of the equipment. The payments are $4,000 due each February 1, starting with the current one. Charlotte’s incremental borrow rate is 5 percent. What journal entry(ies) should Charlotte make on February 1?
3. Sellers Corporation has assets of $450,000 and liabilities of $200,000. What is Sellers’ debt-to-equity ratio?
a. 0.80 to 1.00
b. 1.25 to 1.00
c. 2.25 to 1.00
d. 0.44 to 1.00