Exam 1: CH. 13-15
In finance lease:
the lessee records an asset and a liability for the present value of lease payments.
Jane's Donut Co. borrowed $194,000 on January 1, 2021, and signed a 2 year note bearing interest at 11%. Interest is payable in full at maturity on January 1, 2023. In connection with this note. Jane should report interest expense at December 31, 2021, in then amount of:
$21,340
Jane's Donut Co. borrowed $198,000 on January 1, 2021, and signed a 2 year note bearing interest at 14%. Interest is payable in full at maturity on January 1, 2023. In connection with this note, Jane's should report interest expense at December 31, 2021, in the amount of:
$27,720
Universal Travel Inc. borrowed $500,000 on November 1, 2021, and signed a 12-month note bearing interest at 6%. Interest payable in full at maturity on October 31, 2022. In connection with this note, Universal Travel Inc. should report interest payable at December 31, 2021, in the amount of:
$5,000
Maintenance fees:
Nonlease components
The most common type of liability is:
One to be paid in cash and for which the amount and timing are known.
A discount on a noninterest-bearing note payable is classified in the balance sheet as:
a contra liability
When cash is received from customers in the form of a refundable deposit, the cash account is increased with a corresponding increase in:
a current liability
Which of the following is NOT a current liability:
a note payable due in 2 years
Which of the following is the best definition of a current liability:
an obligation expected to be satisfied with current assets or by the creation of other current liabilities.
Which of the following is not a liability:
an unused line of credit
Additional cash payments included in lease liability calculation:
bargain purchase option
GAAP requires that some lease agreements be accounted for as purchases of assets. The theoretical justification for this treatment is that a lease of this type:
conveys most of the benefits of property ownership
All of the following but one represent collections for third parties. Which one of the following is NOT a collection for a third party:
customer deposits
Initial direct costs:
sales-type lease selling expense
The rate of interest printed on the face of a note payable is called the:
stated rate
The rate of interest that actually is incurred on a bond payable is called the:
effective rate
Leasing has become the number one method of external financing by U.S. companies. Reasons include each of the following except:
extended use of the asset
From the perspective of the lessee, leases may be classified as either:
finance or operating
Which of the following is not a characteristic of a liability:
it must be payable in cash
For a bond issue that sells for more than the bond face amount, the effective interest rate is:
less than the rate stated on the face of the bond
Interest expense is:
the effective interest rate times the amount of the debt outstanding during the interest period.
Residual value:
lessee's guarantee
At times, businesses require advance payments from customers that will be applied to the purchase price when goods are delivered or services provided. These customer advances represent:
liabilities until the product or service is provided.
Short-term lease:
no amortization of lease asset.
Operating costs borne by the lessee:
nonlease components
Amortization a "plug" figure:
operating lease
Straight - line lease expense:
operating lease
Bonds usually sell at their:
present value
Viewed as an additional payment when reasonably certain:
purchase option
Viewed as an additional payment when less than guarantee:
residual value
When a finance lease is first recorded at the beginning of the lease, the lessee typically debits:
right-of-use asset