Exhibit 20-5 the Baltimore, Inc. Entered into a Five-Year Lease with the with the Waugh

Multiple Choice

Exhibit 20-5
The Baltimore, Inc. entered into a five-year lease with the Waugh Chapel Company on January 1, 2016. Baltimore, 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, 2016. The lease contains a bargain purchase option price of $12,000, which the lessee may exercise on December 31, 2020. 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%
-Refer to Exhibit 20-5. If Baltimore requires a 7% annual return, what is the correct amount of interest revenue to be recognized by Baltimore for 2016 round the answer to the nearest dollar) ?

A) $7,774
B) $7,175
C) $6,527
D) $5,928