ch 15 practice

Xavier Corporation leases equipment with a useful life of ten years to Zero Incorporated. The operating lease requires annual payments of $1,500 over a three-year period without a renewal option. After two years, the two companies agree to extend a lease term by two years and increase annual payments to $1,750. What should happen because of this lease modification? Both companies should treat the original lease as being terminated and account for the modification as a new lease. The lease should be reclassified from an operating lease to a finance/sales-type lease. What has been recorded by both companies must be adjusted to conform to the new terms of the contract. All the answer choices are correct.

What has been recorded by both companies must be adjusted to conform to the new terms of the contract.

When a lessee makes an entry at the beginning of a lease, which of the following are included in the amount that will be recorded as both a right-of-use asset and a lease liability? Note: Select all that apply. Fair value of the asset leased Present value of a cash payment expected to be made at the end of the lease term because of a guaranteed residual value Present value of expected residual value Present value of periodic lease payments Sum of the payments made over the term of the lease

Present value of a cash payment expected to be made at the end of the lease term because of a guaranteed residual value Present value of periodic lease payments

Assume that the five classification criteria are applied to a lease involving equipment and, because none of the criteria is met, it is determined that a lease should be classified as an operating lease. At the beginning of the lease, the lessee: Does not record an entry. Records an entry that includes a debit to Right-of-use asset for the carrying amount of the equipment. Records an entry that includes a debit to Right-of-use asset for the present value of the lease payments. Records an entry that includes a debit to Equipment for the present value of the lease payments.

Records an entry that includes a debit to Right-of-use asset for the present value of the lease payments.

On January 1, Leveler Corporation leased equipment to Messy Company. The present value of the lease payments is $200,000 and Leveler's cost of the equipment was $125,000. The lease is properly classified as a sales-type lease. In comparison to the entries that would have been made if this lease did not include a selling profit, how are the entries affected because this lease includes a selling profit? Note: Select all that apply. The entries made by Leveler are not affected. The entries made by Messy are not affected. The entry made by Leveler to record the receipt of the first lease payment also will include the sales revenue and cost of goods sold. The entry made by Messer to record the payment of the first lease payment also will include the sales revenue and cost of goods sold. Each of the entries made by Leveler over the term of the lease will include a portion of the sales revenue and cost of goods sold. Each of the entries made by Messy over the term of the lease will include a portion of the sales revenue and cost of goods sold.

The entries made by Messy are not affected. The entry made by Leveler to record the receipt of the first lease payment also will include the sales revenue and cost of goods sold.

On January 1, 2018, Savor Corporation leased equipment to Spree Company. The lease term is 9 years. The first payment of $698,000 was made on January 1, 2018. The present value of the lease payments is $4,561,300. The lease is appropriately classified as a sales-type lease. Assuming the interest rate for this lease is 9%, how much interest revenue will Savor record in 2018 on this lease?

347697

Assume that a lessor applies the five criteria to a lease involving equipment and determines that a lease should be classified as a sales-type lease. The entry the lessor will record at the beginning of the lease will include a: Credit to Right-of-use asset for the carrying amount of the equipment. Credit to Right-of-use asset for the present value of the lease payments. Debit to Lease receivable for the present value of the lease payments. Debit to Lease receivable for the sum of the cash payments over the term of the lease.

Debit to Lease receivable for the present value of the lease payments.

On January 1, Year 1, Savor Corporation leased equipment to Spree Company. The lease term is 9 years. The first payment of $698,000 was made on January 1, 2018. The present value of the lease payments is $4,561,300. The lease is appropriately classified as an operating lease. Assuming the interest rate for this lease is 9%, how much interest revenue will Savor record in Year 1 on this lease?

0

Sometimes lease payments change during the term of the lease. Three types of leases that include potential increases in lease payments are listed below. Match each with the appropriate description of the impact of the potential change on the present value calculation performed as of the beginning of the lease. 1. Lease specifies annual lease payments of $25,000 per year plus 3% of sales over $100,000. Sales exceed $100,000 this year. 2. Lease specifies annual lease payments of $50,000 per year plus the higher of $10,000 or 3% of sales over $150,000. 3. Lease specifies annual lease payments of $75,000 per year plus the consumer price index (CPI) as of the beginning of the year. The CPI at the beginning of the lease was 3% higher than the previous year.

1. Use the stated amount of the lease payment in the present value calculation performed at the beginning of the lease. 2. Include the minimum amount of lease payment increase in the present value calculation performed at beginning of lease. 3. Increase the initial annual lease payment by 3% in the present value calculation performed at beginning of lease.

On January 1, Year 1, Manlier Incorporated leased equipment costing $45,000 to one of its customers. The sales-type lease agreement specifies six annual payments of $15,000 beginning on that date. The present value of the annual lease payments is $73,619. At the end of the lease, the equipment will be returned to Manlier and is expected to have a residual value of $5,000. The present value of that residual value is $2,822. Complete the appropriate journal entry recorded by Manlier at the beginning of the lease. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your answers to the nearest whole number.

Debit Lease Receivable 76,441 =73619+2822 cost of goods sold 42,178 =45000-2822 credit sales revenue 73619 Equipment 45000

Assume that an asset being leased is expected to have a residual value at the end of the lease term. What will be the impact of the residual value? Note: Select all that apply. It will cause the lease payments by the lessee to be higher. It will affect the lessor's accounting for the lease. At the beginning of the lease, the lessor will add the present value of the residual value to the amount of the lease receivable that would otherwise be recorded under the lease. A gain or loss will be recorded at the end of the lease if the actual residual value is different than that estimated.

It will affect the lessor's accounting for the lease. At the beginning of the lease, the lessor will add the present value of the residual value to the amount of the lease receivable that would otherwise be recorded under the lease. A gain or loss will be recorded at the end of the lease if the actual residual value is different than that estimated.

Amortization of a right-of-use asset over the lease term is recorded by the: Lessee with a debit to Amortization Expense. Lessor with a debit to Amortization Expense. Lessee with a debit to Right-of-use asset. Lessor with a debit to Right-of-use asset.

Lessee with a debit to Amortization Expense.

Assume that a lessee had no significant economic incentive as of the beginning of a 10-year lease for a storefront to exercise an option to terminate the lease after 5 years. However, by the end of the fourth year, the lessee has decided to close the store within the next year, making termination of the lease "reasonably certain." At the end of the fourth year, the lessee would: Note: Select all that apply. Remeasure the lease liability. Determine the full term of the lease to be a total of four years with no years remaining. Calculate the present value of the ten lease payments at the time of the reassessment using market interest rates at the time of the reassessment. Record an entry to decrease the lease payable account balance.

Remeasure the lease liability. Record an entry to decrease the lease payable account balance.

The amortization of a right-of-use asset over the lease term is computed by: Dividing the cost of the asset being leased by the asset's useful life. Dividing the present value of lease payments by the lease term. Dividing the present value of lease payments by the useful life of the asset being leased. Subtracting the amount needed for interest from the straight-line lease payment.

Subtracting the amount needed for interest from the straight-line lease payment.

Which of the following describe the criteria that must be met for a company to treat a lease as a short-term lease? Note: Select all that apply. The lease term is twelve months or less. The lease term (including any options to renew or extend) is twelve months or less. The lease does not contain a purchase option that would extend the term beyond twelve months. The lease does not contain a purchase option that the lessee is reasonably certain to exercise, which would extend the term beyond twelve months.

The lease term (including any options to renew or extend) is twelve months or less. The lease does not contain a purchase option that the lessee is reasonably certain to exercise, which would extend the term beyond twelve months.

Under an operating lease: Note: Select all that apply. The lessee reports amortization expense and interest expense separately in its income statement. The lessee reports a single amount of lease expense, which is equal to interest expense plus amortization expense, in its income statement. The lessor reports a single amount of lease revenue, which is equal to interest revenue plus amortization revenue, in its income statement. The lessee reports lease expense on a straight-line basis and the lessor reports lease revenue on a straight-line basis over the lease term.

The lessee reports a single amount of lease expense, which is equal to interest expense plus amortization expense, in its income statement. The lessee reports lease expense on a straight-line basis and the lessor reports lease revenue on a straight-line basis over the lease term.

If the option is reasonably certain to be exercised, how does the inclusion of a provision that gives the lessee the option to purchase the lease asset during the lease term at a specified exercise price impact that accounting for that lease? Note: Select all that apply. The lessor must classify the lease as a sales-type lease. The lessee has the option of classifying the lease as an operating lease. The lease term is assumed to end on the date that the option is expected to be exercised. In the present value calculations, the lessor adds the present value of the exercise price to the present value of the periodic lease payments to determine the amount recorded as the lease receivable. In the present value calculations, the lessee subtracts the present value of the exercise price from the present value of the periodic lease payments to determine the amount recorded as the lease liability.

The lessor must classify the lease as a sales-type lease. The lease term is assumed to end on the date that the option is expected to be exercised. In the present value calculations, the lessor adds the present value of the exercise price to the present value of the periodic lease payments to determine the amount recorded as the lease receivable.