Su13
Lessee entered into a 10-year equipment lease on January 1, Year 1. Annual lease payments of $40,000 are payable on January 1 each year beginning Year 1. The rate implicit in the lease is 5% and is known to the lessee. The lessee incurred $10,000 of initial direct costs. The lease is classified as an operating lease. 9 years 10 years The present value of an ordinary annuity at 5% 7.1078 7.7217 What are the amounts of the right-of-use asset and lease liability to be recorded at the commencement date? Right-of-Use Asset Liability
$334,312 $324,312
One of the criteria for a lease to be classified as a sales-type lease by the lessor is that the present value of the sum of (1) the lease payments and (2) any residual value guaranteed by the lessee equals or exceeds substantially all of the fair value of the leased asset. Substantially all of the fair value of the leased asset generally is considered to be
90%
Cole
9000
Which of the following is a circumstance in which a lessor may classify a lease as a direct financing lease?
Residual value is guaranteed by a third party not the lessee.
In a lease that is recorded as a sales-type lease by the lessor, interest revenue
Should be recognized over the period of the lease using the effective-interest method.
Toncan
The actual Year 4 hail damage loss in continuing operations, with no separate disclosure.
A lessee had a 10-year finance lease requiring equal annual payments. The reduction of the lease liability in Year 2 should equal
The current liability shown for the lease at the end of Year 1.
Wyatt
The minimum of the range.
Which of the following information about threatened litigation should not be considered to determine whether an accrual is appropriate prior to an issuance of a company's financial statements? .
The period in which the threatened litigation became known to management
Quinn
The reduction of the lease liability is recorded when periodic lease payments are made.
The present value of lease payments should be used by the lessee in determining the amount of a lease liability under a lease classified by the lessee as a(n)
Yes yes
Vail
Yes yes
Doll Co. and Brooker C
Yr 5. Yr 4
Potter
$2,000,000 loss $1,500,000 loss $1,000,000 gain
Green
0
Ichabod
0
Swine
0
Beal
10%
Arts
10,200
Oren
10,500
Trap
100,000
Gee
9,000
Wall
10800
Blaugh
111,500
Bain
12yrs
Haze
15,000
Ames
17,000
Winn
17,000
Neary
20,000
Davis
20,500
Koby
2675,000
Nori Mining
27,500
Wren
27,500
Babson
48,620
Jaffe
5760
Clark
66,000
On December 20, Year 6, an uninsured property damage loss was caused by a company car being driven on company business by a company sales agent. The company did not become aware of the loss until January 25, Year 7, but the amount of the loss was reasonably estimable before the financial statements were issued. The company's December 31, Year 6, financial statements should report an estimated loss as .
An accrual.
Slim
As a note to the financial statements disclosing a possible liability of $300,000.
Neary
Asset and liability
A liability arising from a loss contingency should be recorded if the . .
Contingent future events will probably occur and the amount of the loss can be reasonably estimated
Conlon
Disclosure in the notes only.
Lease M
Finance lease Finance lease
On January 1, Year 1, Lessee entered into a 4-year lease with Lessor that does not transfer ownership at the end of the lease term. It also includes a purchase option not reasonably expected to be exercised. The unspecialized leased asset has (1) a 5-year economic life, (2) no residual value, and (3) a present value of the annual lease payments equal to 75% of the leased asset's fair value. Moreover, Lessee incurred no initial direct costs. The lease therefore is classified as a(n) .
Finance lease by the lessee.
Date
In note disclosure only.
JCK
Interest smaller
Bailey
No yes
rent
No yes no
Seller-Guarantor
Noncontingent liability of $40,000.
When should a lessor recognize in income a nonrefundable lease bonus paid by a lessee on signing an operating lease?
Over the life of the lease
On January 1, Year 1, Lessee entered into a 4-year lease that does not transfer ownership or contain a purchase option. The economic life of the leased asset, which has an alternative use, is 6 years. Also, the present value of the lease payments is 75% of the fair value of the leased asset. If no initial direct costs are incurred, what is the lessee's appropriate accounting? .
Recognize lease expense for the same amount each period of the lease term.
Which of the following is a condition for a lessee to elect an accounting policy not to recognize the right-of-use asset and lease liability?
The lease has a term of 12 months or less at the commencement date
On January 1, Year 5, Company A leased a customized forklift to Company B (lessee) for a lease term of 10 years.
The lessee is not expected to exercise the option to purchase the leased asset.
