Exhibit 21-5 The Chicago, Inc.entered into a five-year lease with the Urbana Company on January 1, 2010.Chicago, the lessor, will require that five equal annual payments of $25, 000 be made at the beginning of each year.The first payment will be made on January 1, 2010.The lease contains a bargain purchase option price of $12, 000, which the lessee may exercise on December 31, 2014.The lessee pays all executory costs.The cost of the leased property and its normal selling price are $95, 000 and $118, 236, respectively.Collectibility of the future lease payments is reasonably assured, and the lessor does not expect to incur any future costs related to the lease.Present value factors for a 7% interest rate are as follows:
$\begin{array}{llr}
\text { Present value of $ \$ 1 $ for $ n=1 $} &0.934579\
\text { Present value of $ \$ 1 $ for $ n=5 $ } &0.712986\
\text { Present value of an ordinary annuity for $ n=5 $ } &4.100197\
\text { Present value of an annuity due for $ n=5 $ } &4.387211\

\end{array}$

- Refer to Exhibit 21-5.If Chicago requires a 7% annual return, what is the correct amount of interest revenue to be recognized by Chicago for 2010? (Round the answer to the nearest dollar.)
A)$7, 774
B)$7, 175
C)$6, 527
D)$5, 928

Question

Exhibit 21-5 The Chicago, Inc.entered into a five-year lease with the Urbana Company on January 1, 2010.Chicago, the lessor, will require that five equal annual payments of $25, 000 be made at the beginning of each year.The first payment will be made on January 1, 2010.The lease contains a bargain purchase option price of $12, 000, which the lessee may exercise on December 31, 2014.The lessee pays all executory costs.The cost of the leased property and its normal selling price are $95, 000 and $118, 236, respectively.Collectibility of the future lease payments is reasonably assured, and the lessor does not expect to incur any future costs related to the lease.Present value factors for a 7% interest rate are as follows:
$\begin{array}{llr}
  \text {  Present value of \( \$ 1 $ for $ n=1 $} &0.934579\
 \text { Present value of $ \$ 1 $ for $ n=5 $ } &0.712986\
 \text { Present value of an ordinary annuity for $ n=5 $ } &4.100197\
 \text { Present value of an annuity due for $ n=5 $ } &4.387211\

\end{array}\)

- Refer to Exhibit 21-5.If Chicago requires a 7% annual return, what is the correct amount of interest revenue to be recognized by Chicago for 2010? (Round the answer to the nearest dollar.)
A)$7, 774
B)$7, 175
C)$6, 527
D)$5, 928

Quizplus · Accepted Answer

The Answer of Exhibit 21-5 The Chicago, Inc.entered into a five-year lease with the Urbana Company on January 1, 2010.Chicago, the lessor, will require that five equal annual payments of $25, 000 be made at the beginning of each year.The first payment will be made on January 1, 2010.The lease contains a bargain purchase option price of $12, 000, which the lessee may exercise on December 31, 2014.The lessee pays all executory costs.The cost of the leased property and its normal selling price are $95, 000 and $118, 236, respectively.Collectibility of the future lease payments is reasonably assured, and the lessor does not expect to incur any future costs related to the lease.Present value factors for a 7% interest rate are as follows:
$\begin{array}{llr}
  \text {  Present value of \( \$ 1 $ for $ n=1 $} &0.934579\
 \text { Present value of $ \$ 1 $ for $ n=5 $ } &0.712986\
 \text { Present value of an ordinary annuity for $ n=5 $ } &4.100197\
 \text { Present value of an annuity due for $ n=5 $ } &4.387211\

\end{array}\)

- Refer to Exhibit 21-5.If Chicago requires a 7% annual return, what is the correct amount of interest revenue to be recognized by Chicago for 2010? (Round the answer to the nearest dollar.)
A)$7, 774
B)$7, 175
C)$6, 527
D)$5, 928

Exhibit 21-5 the Chicago, Inc - Refer to Exhibit 21-5