Question

Jacobs Eatery leased restaurant equipment from Gamma Leasing. Gamma earns interest under such arrangements at a 6% annual rate. The lease term is eight months with monthly payments of $20,000 due at the end of each month. Jacobs Eatery elected the short-term lease option. What is the effect of the lease on Jacobs Eatery's earnings during the eight-month term (ignore taxes)?An initial expense of $160,000.An expense of $20,000 at the end of each of the 8 months.No expense within the 8 month period.An expense of $20,000 initially and $20,000 at the end of 7 months.

Answer 1

Answer:

An expense of $20,000 at the end of each of the 8 months

Explanation:

The effect of the lease on earning during the eight-month term is the $20,000 expense for each month up to 8 months.

As we know that the monthly lease payments are $20,000 due at the end of each month. So it is considered to be the expense for $20,000 for the 8 months. As the lease payment is considered as the least deduction which are eligible for both type of records i.e accounting and the tax purpose.

Hence, all other options are wrong except B option