Deck 20: Accounting for Leases

Question 1

Risks and benefits of ownership transfer to the lessee with an operating lease.

Answer 1

False

Question 2

Lease accounting rules may apply if an arrangement or contract does not explicitly state that it is a lease.

Answer 2

True

Question 3

For which of the following conditions will the lessor classify a lease as a sales-type lease?

A) The present value of the sum of the lease payments is equal to or more than the fair value of the underlying asset.
B) The lease term is less than one year.
C) The leased asset may be exchanged for a similar asset during the lease term.
D) The collectability of the minimum lease payments is reasonably assured.

Answer 3

A

Question 4

Exhibit 20-3
On January 1, 2016, Quinn Company enters into a five-year sales-type lease with Andy Company. The lease requires Andy to make five annual payments at the beginning of the year, with the first payment due January 1,
Refer to Exhibit 20-3. What is the amount of sales revenue to be recognized by Quinn on January 1, 2016,?

A) $143,791
B) $150,000
C) $50,000
D) $0

Question 5

If a sales-type lease is renewed at the end of a lease term, the lessor must account for the lease as if it were a direct financing lease.

Question 6

The lessor is the party in the lease agreement who acquires the right to use the leased asset in exchange for making future lease payments.

Question 7

Exhibit 20-4
On January 1, 2016, Average Leasing Company entered into a direct financing lease with a lessee, Lenny Company. The lease agreement calls for five equal annual payments of $75,000 at the beginning of each year with the first payment due on January 1, 2016. The leased property has an estimated residual value of $10,000, which Lenny does not guarantee. The property remains the property of Average at the end of the lease term. Average desires a 12% rate of return. Present value factors for a 12% interest rate are as follows:
Refer to Exhibit 20-4. What is the amount of interest revenue that Average should recognize on the lease for the year ended December 31, 2016 round the answer to the nearest dollar)?

A) $37,017
B) $28,017
C) $36,336
D) $27,336

Question 8

Which is not an advantage of leasing from a lessee's viewpoint?

A) The asset can be acquired without having to make a substantial down payment.
B) "Off-balance-sheet financing" may be practiced.
C) A lease may provide 100% financing.
D) The risk of obsolescence may be reduced.

Question 9

From the lessor's standpoint, which of the following statements regarding leasing is false?

A) The lease provides a method of indirectly making a sale.
B) The asset is transferred to the lessee and removed from the books of the lessor.
C) For sales-type lease agreements, the lessor earns interest in addition to profit from the transfer of the asset.
D) The risk of default is a disadvantage for the lessor.

Question 10

For the lessor, cash receipts for a direct financing lease are classified as inflows in the financing activities section of the cash flow statement.

Question 11

The account Unearned Interest: Leases should be reported on the lessor's financial statements as

A) other revenue.
B) an asset.
C) a contra-asset.
D) a liability.

Question 12

Which is an advantage of leasing from a lessee's viewpoint?

A) The asset can be acquired without having to make a substantial down payment.
B) The lease is a way of indirectly making a sale.
C) "Off-balance-sheet financing" may be practiced.
D) Assets and liabilities associated with the lease may not be reported.

Question 13

A required disclosure of a direct financing lease is that the cost of property on lease and the amount of the total accumulated depreciation.

Question 14

In a direct financing lease, the lessor's carrying value of the leased asset is less than its fair value.

Question 15

Control over the underlying asset in a lease means directing its use and obtaining substantially all economic benefit.

Question 16

From the lessee's viewpoint, which of the following is not an advantage of leasing?

A) In many cases, an asset may be leased without requiring the lessee to record the lease asset and lease liability.
B) A lease agreement may reduce the risk of obsolescence for a lessee.
C) In many cases, an asset may be leased without requiring the lessee to make a substantial down payment.
D) The lessee may be able to claim larger tax deductions through leasing the asset than if the asset were purchased.

Question 17

A lease transfers the right to use an identified asset for a period of time in exchange for rental payments.

Question 18

From the lessee's point of view, leasing provides a method of making a sale while still maintaining the advantages of ownership, including security in the asset and tax benefits.

Question 19

A lessor has an account, Equipment Leased to Others, and the related account, Accumulated Depreciation: Equipment Leased to Others, on its year-end balance sheet. How should the lease related to these accounts be classified?

A) operating lease
B) direct financing lease
C) sales-type lease
D) leveraged lease

Question 20

The identified asset in the lease must be physically distinct and not substitutable.

Question 21

For a lease that contains a bargain purchase option, minimum lease payments include

A) any guarantee by the lessee of the residual value.
B) any payments on failure to renew or extend the lease.
C) executory costs.
D) minimum periodic rental payments required by the lease over the lease term.

Question 22

A lease that transfers substantially all the risks and benefits of ownership from the lessor to the lessee is referred to as

A) a capital lease.
B) a capitalization lease.
C) an operating lease.
D) a transfer lease.

Question 23

If a lease is structured so that the lessee pays a set rental payment each period plus an additional amount based upon usage or a change in an index, these contingent rental payments should be expensed when the contingency is likely
to be met.

Question 24

On January 1, 2016, Watson Company signed a four-year lease requiring annual payments of $45,000, with the first payment due on January 1, 2016. Watson's incremental borrowing rate was 7%. Actuarial information for 7% follows:
Assuming the lease qualifies as a capital lease, what amount should be recorded as leased equipment under capital leases on January 1, 2016 rounded to the nearest dollar)?

A) $197,424
B) $163,094
C) $152,424
D) $184,509

Question 25

Which of the following cash flows is classified as an investing cash flow?

A) payment received under an operating lease
B) purchase of an asset leased under a sales-type lease
C) interest portion of payment received under a direct financing lease
D) reduction of a direct financing lease receivable

Question 26

On January 1, 2016, Denise Company signed a lease agreement requiring ten annual payments of $14,000, beginning December 31, 2016. The agreement was classified as a capital lease. When reviewing Denise's accounting records, which of the following journal entries would not be expected?

Question 27

If all of the following are provided for by a lease contract, which one is not included in minimum lease payments for the lessee?

A) payments resulting from failure to renew the lease
B) unguaranteed residual value
C) bargain purchase price
D) guaranteed residual value

Question 28

If a lease is classified as a capital lease because the lease agreement contains a bargain purchase option, the time period to be used by the lessee to amortize the leased property is

A) the lease term.
B) the expected economic life of the property.
C) the lease term or the expected economic life of the property, whichever is shorter.
D) the maximum amortization period for intangible assets.

Question 29

A lessee computes the present value of the minimum lease payments using the lower of either the lessee's incremental borrowing rate or the lessor's implicit interest rate in the lease.

Question 30

When a lessee makes periodic cash payments for an operating lease, which of the following accounts is increased?

A) Rent Expense
B) Leased Equipment
C) Capital Lease Obligation
D) Interest Expense

Question 31

Exhibit 20-1
On January 1, 2016, Pearson Company signed a lease agreement requiring six annual payments of $60,000,
beginning December 31, 2016. Pearson's incremental borrowing rate was 9% and the lessor's implicit rate, known by
Pearson, was 10%. The present value factors of an ordinary annuity of $1 for six periods for interest rates of 9%
and 10% are 4.48592 and 4.35526, respectively.
Refer to Exhibit 20-1. What would be the balance of the lease obligation on January 1, 2017, for financial reporting purposes after the lease payment? Round answers to the nearest dollar)

A) $0
B) $166,779
C) $227,447
D) $233,379

Question 32

On January 1, 2016, Renee Corp., a lessee, signed a five-year capital lease for new equipment. The lease requires annual payments of $8,000. The first payment is due on December 31, 2016. Renee guaranteed a residual value of $2,000. On December 31, 2020, Renee returned the asset to the lessor, and the asset was appraised at a value of
$1,500. Renee should record which of the following on December 31, 2020?

A) a $1,500 credit to leased equipment
B) a $500 debit to loss on disposal of leased equipment
C) a $500 debit to cash
D) a $1,500 credit to cash

Question 33

The lessor should report the Lease Receivable for a sales-type lease on its balance sheet as

A) a current asset.
B) a long-term asset.
C) a current asset for the current portion and a long-term asset for the remaining amount.
D) only a note to the financial statements.

Question 34

Costs of maintaining leased property such as insurance, maintenance, and property taxes are referred to as

A) executory costs.
B) residual value costs.
C) participatory costs.
D) incremental costs.

Question 35

Which of the following is not a required disclosure by a lessor of a sales-type lease?

A) the guaranteed residual value accruing to the benefit of the lessor
B) total contingent rentals included in revenue for the period
C) unearned income
D) a general description of the lessor's leasing arrangements

Question 36

Exhibit 20-1
On January 1, 2016, Pearson Company signed a lease agreement requiring six annual payments of $60,000,
beginning December 31, 2016. Pearson's incremental borrowing rate was 9% and the lessor's implicit rate, known by
Pearson, was 10%. The present value factors of an ordinary annuity of $1 for six periods for interest rates of 9%
and 10% are 4.48592 and 4.35526, respectively.
Refer to Exhibit 20-1. What would be the interest expense for 2016 round answers to the nearest dollar)?

A) $21,003
B) $22,746
C) $24,224
D) $26,132

Question 37

The amount of the lease obligation that is classified as a current liability is the dollar amount of lease payments to be made during the current year.

Question 38

Which of the following is not included in the minimum lease payments?

A) any guarantee by the lessee of the residual value
B) any payments on failure to renew or extend the lease
C) executory costs
D) minimum periodic rental payments

Question 39

Executory costs

A) are included in the minimum lease payments by the lessee.
B) should normally be borne by the party that is, in substance, the owner of the asset.
C) are the costs incurred by the lessor that are directly associated with negotiating and completing the lease transaction.
D) are always paid by the lessee.

Question 40

Exhibit 20-1
On January 1, 2016, Pearson Company signed a lease agreement requiring six annual payments of $60,000,
beginning December 31, 2016. Pearson's incremental borrowing rate was 9% and the lessor's implicit rate, known by
Pearson, was 10%. The present value factors of an ordinary annuity of $1 for six periods for interest rates of 9%
and 10% are 4.48592 and 4.35526, respectively.
Refer to Exhibit 20-1. What would be the balance of the lease obligation for financial reporting purposes on December 31, 2017, after the lease payment round answers to the nearest dollar)?

A) $194,383
B) $167,979
C) $190,192
D) $233,379

Question 41

When is it appropriate for the lessee to use the lessor's implicit rate to discount the minimum lease payments?

A) whenever the lessee knows what the lessor's rate is
B) when the lessor's rate is higher than the lessee's incremental borrowing rate
C) when the lessee's incremental borrowing rate is lower than the lessor's rate
D) when the lessor's implicit rate is lower than the lessee's incremental borrowing rate

Question 42

A capital lease should be recorded in the lessee's accounts at the inception of the lease in an amount equal to

A) the present value of the minimum lease payments less the executory costs included in the minimum lease payments.
B) the total value of the future rental payments less any estimated contingent payments.
C) the total value of future rental payments less any executory payments included in the future payments.
D) the total value of the minimum lease payments less executory costs, if any.

Question 43

The Roger Company leased a machine at the beginning of 2016. The machine was properly capitalized by Roger at $73,735. A lease payment of $16,563 is due at the end of each year. The expected life of the machine is seven years, and the term of the lease is five years. At the beginning of 2021, the machine will be returned to the lessor. Both Roger and the lessor use the straight-line method of depreciation. What amount of depreciation expense should
Roger record in 2016 for the machine round calculations up to the nearest dollar)?

A) $14,600
B) $14,747
C) $16,563
D) $17,000

Question 44

Exhibit 20-2
On January 1, 2016, Mary Company leased equipment, signing a five-year lease that requires annual lease payments of $20,000. The lease qualifies as a capital lease. The payments are made at year-end, and the first payment will be made at December 31, 2016. In addition, Mary guarantees the residual value to be $8,000 at the end of the lease term. Mary correctly uses the lessor's implicit interest rate, which is 12%. The present value factors for five periods at 12% are as follows:
Refer to Exhibit 20-2. What is the amount of interest expense associated with the leased equipment for the year ending December 31, 2016?

A) $2,400
B) $8,651
C) $9,196
D) $20,000

Question 45

Exhibit 20-2
On January 1, 2016, Mary Company leased equipment, signing a five-year lease that requires annual lease payments of $20,000. The lease qualifies as a capital lease. The payments are made at year-end, and the first payment will be made at December 31, 2016. In addition, Mary guarantees the residual value to be $8,000 at the end of the lease term. Mary correctly uses the lessor's implicit interest rate, which is 12%. The present value factors for five periods at 12% are as follows:
Refer to Exhibit 20-2. If the Mary Company uses the straight-line method of depreciation for its assets, what is the amount of depreciation expense for the leased equipment for the year ending December 31, 2016?

A) $15,554
B) $14,419
C) $13,727
D) $12,419

Question 46

When a lessee makes periodic cash payments for a capital lease, which of the following accounts is increased?

A) Lease Rental Expense
B) Leased Equipment
C) Capital Lease Obligation
D) Interest Expense

Question 47

On January 1, 2016, Madison Company signed a four-year lease requiring annual payments of $15,000 with the first payment due on January 1, 2016. The fair value of the equipment leased was $50,000. Madison's incremental borrowing rate was 6%. Actuarial information for 6% follows:
Assuming the lease qualifies as a capital lease, what amount should be recorded as leased equipment under capital leases on January 1, 2016 rounded to the nearest dollar)?

A) $48,185
B) $50,000
C) $51,977
D) $55,095

Question 48

Exhibit 20-2
On January 1, 2016, Mary Company leased equipment, signing a five-year lease that requires annual lease payments of $20,000. The lease qualifies as a capital lease. The payments are made at year-end, and the first payment will be made at December 31, 2016. In addition, Mary guarantees the residual value to be $8,000 at the end of the lease term. Mary correctly uses the lessor's implicit interest rate, which is 12%. The present value factors for five periods at 12% are as follows:
Refer to Exhibit 20-2. What is the interest expense associated with the lease obligation for the year ending December 31, 2017? Round answers to the nearest dollar.)

A) $20,000
B) $10,804
C) $7,900
D) $7,290

Question 49

On January 3, 2016, the Walters Corporation signed a 10-year non-cancelable lease for manufacturing equipment. The fair value of the equipment at that time was $550,000. At the end of the lease period, the equipment, which has an estimated life of 15 years, will be returned to the lessor. Additional information is below: Walters should

A) capitalize the equipment at $550,000.
B) capitalize the equipment at $491,565.
C) capitalize the equipment at $452,018.
D) not capitalize the equipment.

Question 50

On January 1, 2016, Mark Company leased equipment by signing a five-year lease that required five payments of $85,000 due on December 31 of each year. The equipment remains the property of the lessor at the end of the lease, and Mark does not guarantee any residual value. Using a rate of 11%, Mark capitalized the lease on January 1, 2016, in the amount of $314,152. What is the amount of the lease obligation on December 31, 2017?

A) $263,709
B) $207,717
C) $279,595
D) $225,350

Question 51

Which of the following items would not be included in the calculation of the capital lease obligation?

A) bargain purchase option
B) guaranteed residual value
C) executory costs
D) any payments required for failure to renew or extend the lease

Question 52

When a lessee makes periodic cash payments for a capital lease, which of the following accounts is decreased?

A) Lease Rental Expense
B) Leased Equipment
C) Capital Lease Obligation
D) Interest Expense

Question 53

Jennifer, Inc. entered into a five-year capital lease on December 31, 2016. This lease requires five minimum annual lease payments due on December 31 of each year. The first minimum payment was paid on December 31, 2016. This payment included which of the following?

A) I
B) II
C) III
D) IV

Question 54

On January 1, 2016, Stacie signed a lease agreement with Amy. Amy will use the equipment and make ten annual payments of $25,000 beginning December 31, 2016. The lease is considered to be a capital lease. When reading the Amy income statement, you would expect to find which of the following accounts?

A) Rent Revenue
B) Interest Revenue
C) Rental Expense
D) Interest Expense

Question 55

On January 1, 2016, Donna Company leased equipment by signing a five-year lease that required five payments of $30,000 due on December 31 of each year. The equipment remains the property of the lessor at the end of the lease, and Donna does not guarantee any residual value. Using a rate of 8%, Donna capitalized the lease on January 1,
2016, in the amount of $119,781. What is the amount of interest expense Donna should report on its 2017 income statement?

A) $9,582
B) $7,949
C) $20,418
D) $22,051

Question 56

If a lessee classifies a lease as a capital lease and uses the straight-line method of depreciation, what is the amount to be amortized over the lease term?

A) the original amount capitalized less the present value of the guaranteed residual value if applicable)
B) the original amount capitalized less the unguaranteed residual value
C) the original amount capitalized less the guaranteed residual value if applicable)
D) fair value of the leased property

Question 57

Exhibit 20-2
On January 1, 2016, Mary Company leased equipment, signing a five-year lease that requires annual lease payments of $20,000. The lease qualifies as a capital lease. The payments are made at year-end, and the first payment will be made at December 31, 2016. In addition, Mary guarantees the residual value to be $8,000 at the end of the lease term. Mary correctly uses the lessor's implicit interest rate, which is 12%. The present value factors for five periods at 12% are as follows:
Refer to Exhibit 20-2. What would be the debit to Leased Equipment under Capital Leases on January 1, 2016? Round amounts to the nearest dollar.)

A) $72,096
B) $76,635
C) $100,000
D) $110,000

Question 58

Which of the following statements regarding the calculation of the lessee's depreciation expense for a capital lease is true?

A) The bargain purchase option price is deducted from the original cost capitalized, and the difference is allocated over the estimated economic life of the asset.
B) The guaranteed residual value is deducted from the original cost capitalized, and the difference is allocated over the estimated economic life of the asset.
C) The unguaranteed residual value is deducted from the original cost capitalized, and the difference is allocated over the term of the lease.
D) The guaranteed residual value is deducted from the original cost capitalized, and the difference is allocated over the term of the lease.

Question 59

On January 1, 2016, Reynolda Co. leased equipment by signing a five-year lease that required five payments of $30,000 due on January 1 of each year with the first payment due January 1, 2016. The equipment remains the property of the lessor at the end of the lease and Reynolda does not guarantee any residual value. Using a 10% cost of capital, Reynolda capitalized the lease on January 1, 2016, in the amount of $125,096. What is the amount of current portion of the lease obligation Reynolda should report on the December 31, 2017, balance sheet?

A) $7,461
B) $20,490
C) $22,539
D) $30,000

Question 60

Which statement is not true?

A) If a lease is a capital lease because of a bargain purchase option, the leased asset should be depreciated over the life of the asset, not the life of the lease.
B) The lessee ignores unguaranteed residual value in the measurement of the lease obligation.
C) If there is a bargain purchase option, the lessor does not consider an unguaranteed residual value in measuring the lease receivable at the date of lease signing.
D) In direct financing leases, the net investment in the lease should be adjusted each year by material changes increases or decreases) in estimated unguaranteed residual values.

Question 61

A direct financing lease differs from a sales-type lease in that

A) the direct financing lease does not have a dealer profit, although it could have a dealer loss.
B) the direct financing lease provisions do not include a bargain purchase option.
C) the sales-type lease does not have unearned interest income at the inception of the lease.
D) the direct financing lease does not have a dealer profit or loss.

Question 62

A direct financing capital lease results in a manufacturers or dealers profit or loss and meets one or more of the capitalization criteria and both of the recognition criteria.

Question 63

Depreciation expense will be recorded in the accounts of the

A) lessee for operating leases.
B) lessor for operating leases.
C) lessor for direct financing leases.
D) lessor for sales-type leases.

Question 64

The lessee should report capital lease obligations on the balance sheet as

A) a current liability.
B) a long-term liability.
C) a current liability for the current portion and a long-term liability for the remaining amount.
D) a note to the financial statements only.

Question 65

The existence and term of renewal or purchase options and escalation clauses are disclosed for capital leases only.

Question 66

Which of the following facts would require a lessor to classify a lease as an operating lease?

A) Important uncertainties exist about unreimbursable costs yet to be incurred by the lessor.
B) No bargain purchase option is provided for by the lease agreement.
C) The lease term is 65% of the estimated economic life of the leased property.
D) The sum of the minimum lease payments is 90% of the fair value of the leased property to the lessor.

Question 67

The lessee's disclosures should include the future minimum rental payments as of the date of the latest balance sheet presented, in the aggregate and for a certain number of succeeding fiscal years. What is the required number of years?

A) 10
B) 8
C) 7
D) 5

Question 68

For a sales-type lease, cost of asset leased is valued by the lessor at

A) the recorded cost assigned to the inventory less the present value of the guaranteed residual value of the leased property accruing to the benefit of the lessor.
B) the recorded cost assigned to the inventory less the undiscounted value of the unguaranteed residual value of the leased property accruing to the benefit of the lessor.
C) the recorded cost assigned to the inventory less the present value of the unguaranteed residual value of the leased property accruing to the benefit of the lessor.
D) the recorded cost assigned to the inventory less the undiscounted value of the guaranteed residual value of the leased property accruing to the benefit of the lessor.

Question 69

Which of the following is a required disclosure by a lessee for both capital leases and operating lease?

A) rental expense for each period
B) lease assets, accumulated amortization, amortization expense, and liabilities
C) amount of imputed interest required to reduce the net minimum payments to present value
D) dividend and debt restrictions imposed by lease agreements

Question 70

On January 1, 2016, Stephen Corp., a lessor, signed a direct financing lease. Stephen was to receive annual year-end payments of $10,000 for ten years, after which there was a guaranteed residual value of $8,000. The implicit interest rate was 8%. Actuarial information for 8%, ten periods follows round to the nearest whole dollar):
On January 1, 2016, what amount should Stephen record as a debit to Lease Receivable?

A) $67,100
B) $70,814
C) $100,000
D) $108,000

Question 71

On January 1, 2016, Stacie signed a lease agreement with Amy. Amy will use the equipment and make ten annual payments of $15,000 beginning December 31, 2016. The lease is considered to be a sales-type lease. When reading the Stacie income statement, you would expect to find which of the following accounts?

A) Rent Revenue
B) Interest Revenue
C) Rental Expense
D) Interest Expense

Question 72

A lessee reports noncash investing and financing activity on the statement of cash flows when recording a capital lease.

Question 73

In a sales-type lease

A) sales revenue ignores the present value of the guaranteed residual value.
B) sales revenue includes the present value of unguaranteed residual value.
C) cost of goods sold is reduced by the amount of unguaranteed residual value.
D) both sales and cost of goods sold are decreased by the present value of any unguaranteed residual values.

Question 74

Davis Co., a lessor, signed a direct financing lease on January 1. The cost and fair value of the machine that was leased was $60,000. The implicit interest rate was 6%. The lease period was seven years, with the first payment due immediately. Actuarial information for 6% follows:
What is the annual lease payment to be collected by Davis?

A) $8,571.43
B) $9,115.25
C) $10,139.72
D) $11,516.78

Question 75

On January 1, 2016, Rhyme Co. leased equipment by signing a six-year lease that required six payments of $30,000 due on January 1 of each year with the first payment due January 1, 2016. The equipment remains the property of the lessor at the end of the lease, and Rhyme does not guarantee any residual value. Using an 8% cost of capital, Rhyme capitalized the lease on January 1, 2016, in the amount of $149,781. What is the total amount of lease liability including interest) Rhyme should report as of December 31, 2017?

A) $99,364
B) $107,313
C) $119,781
D) $121,415

Question 76

A lease must be treated as a direct financing lease by the lessor when at least one of the four basic criteria is met, collectability of the minimum lease payments is reasonably assured, no uncertainties surround the amount of the unreimbursable costs, and

A) the lessor is a financial institution.
B) the interest revenue element is determined in such a manner as to produce a constant rate of return on the net investment of the lease.
C) the lessor does not have a dealer profit or loss.
D) the lease agreement contains a provision for unguaranteed residual value.

Question 77

Which of the following statements is true about initial direct costs?

A) Initial direct costs should always be debited against income by the lessor in the period of the inception of the lease.
B) Initial direct costs are ownership-type costs such as insurance, maintenance, and taxes.
C) Initial direct costs of an operating lease should be recorded by the lessor as a prepaid asset.
D) Initial direct costs of a sales-type lease should be expensed as incurred, and an equal amount of the unearned income should be recognized as income in the same period.

Question 78

Which of the following is not a required disclosure by a lessee of an operating lease?

A) rental expense for the period
B) total contingent rentals
C) the amount of any sublease rentals
D) the gross amount of assets under operating leases

Question 79

When a lessor receives cash on an operating lease, which of the following accounts is increased?

A) Interest Revenue: Leases
B) Lease Rental Revenue
C) Lease Payable
D) Unearned Interest: Leases

Question 80

On January 1, 2016, Kathy Corp. leased equipment by signing a five-year lease that required five payments of $60,000 due on December 31 of each year. Kathy has a 9% cost of capital and capitalized the lease on January 1,
2016, in the amount of $233,379. As of December 31, 2016, what amount is reported as the current portion of the lease obligation?

A) $60,000
B) $46,331
C) $42,506
D) $13,669