Use the following information to answer the next _4_questions.
Odom Company leased a machine to Rapp Corp. on January 1, 2016. The lease is for a 10-year period. The economic life
of the equipment is 15 years. Odom purchased the machine for $80,000 and expects to earn a 10% return on its investment
based on an annual rental of $11,836. The first payment is due January 1, 2016. At the end of the lease, title transfers to
Rapp Corp. The present value of the minimum lease payments is $80,000. The fair market value of the equipment is
$90,000.
6. What type of lease is this to Odom Company?
a. direct financing
b. sales-type
c. operating
d. right-to-use
7. This lease is a capital lease to Rapp Corp. under which criteria?
a. 75% rule
b. 90% rule
c. title transfers
d. bargain purchase
8. How much interest revenue will Odom Company recognize during 2016?
a. $8,000
b. $9,000
c. $3,836
d. $6,816
9. How much interest expense will Rapp record in 2017?
a. $6,816
b. $6,314
c. $3,836
d. $7,414