65. Assume U.S. GAAP (generally accepted accounting principles) applies unless
otherwise noted.
At the beginning of the year, a lessee company enters into a new lease agreement
that is correctly classified as a finance lease, with the following terms:
Annual lease payments due at the end of the year $100,000
Lease term 5 years
Appropriate discount rate 12%
Depreciation method straight-line basis
Estimated salvage value $0
With respect to the effect of the lease on the company’s financial statements in the
first year of the lease, which of the following is most accurate? The reduction in
the company’s:
A. pretax income is $72,096.
B. cash flow from financing is $56,742.
C. cash flow from operations is $72,096.
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