Which of the following would be an argument for using the gross cost of plant and equipment as part of operating assets in return on investment computations?
A. It is consistent with the computation of net operating income, which includes depreciation as an operating expense.
B. It eliminates the age of equipment as a factor in ROI computations.
C. It is consistent with the balance sheet presentation of plant and equipment.
D. It discourages the replacement of old, worn-out equipment because of the dramatic, adverse effect on ROI.
Answer: B
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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
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