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Financial Statements of Bush Corporation

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Bush Corporation signed a lease for equipment from EZ Leasing Company on January 1 20X2, for a period of ten years at $40,000 per year, including insurance of $3,000 and taxes of $2,000 per year. The equipment had a useful life of fifteen years. At the end of the lease, Bush will have the option of buying the equipment outright for a dollar. Bush's incremental borrowing rate is 8%, and the rate implicit in the lease (which is known to Bush) is 6%. Lease payments are due every year on December 31. The present value of an annuity for various terms and rates are as follows:

6% 8%
10 years 7.360 6.710
15 years 9.712 8.559

On its financial statements for the year ended June 30, 20X2, Bush will display the following:

Accumulated Equipment:
Lease Depreciation:
Accrued Payable:

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Solution Preview

Discount rate 6%
Annual payment:
Lease payment 40000
Insuarnce 3000
Taxes 2000
Lease term 10 years
Useful ...

Solution Summary

Accumulated equipment, lease depreciation, accrued payable, and interest are determined for Bush Corporation.

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1.) Clinton, Bush, and Bush Company (CB2) Company uses a periodic inventory system. At the end of the annual accounting period, December 31, 2009, the accounting records provided the following information for product

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b. Compare the pretax income and the ending inventory amounts between the two cases.

c. Which inventory costing method would be preferred for income tax purposes? Why?

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