20 adaptivestudy

Which of the following statements is not true? a.If a lessee records a lease as a finance lease, it reports a noncash operating and financing activity at the signing of the lease agreement. b.The lessee discloses information in its balance sheet or in the notes to its financial statements. c.For each lease payment, the lessee classifies the portion of each cash outflow that reduces the lease obligation as a use of cash in the financing activities. d.For operating leases, rental expenses are disclosed for each period.

a.If a lessee records a lease as a finance lease, it reports a noncash operating and financing activity at the signing of the lease agreement.

Which of the following is not a disclosure requirement for a finance lease? a.The total of minimum rentals to be received in the future under noncancelable subleases b.Total of minimum sublease rentals to be received in the future under noncancelable subleases c.Gross amount of assets recorded under capital leases by major classes according to nature or function d.Assets, accumulated depreciation, depreciation expense, and liabilities

a.The total of minimum rentals to be received in the future under noncancelable subleases

The FASB determined that the right to control the asset involves the right a.to obtain substantially all the economic benefits from the use of the identified asset and the right to direct the use of the identified asset. b.to obtain substantially all the economic benefits from the use of the identified asset. c.to obtain substantially all the economic benefits if the other party has the rights to a significant portion of the potential economic benefits. d.to direct the use of the identified asset.

a.to obtain substantially all the economic benefits from the use of the identified asset and the right to direct the use of the identified asset.

Which of the following statements regarding lessees is true? a.A lessee gives up the right to use an identified asset in exchange for the receipt of future lease payments. b.A lessee acquires the right to use an identified asset in exchange for making lease payments. c.A lessee acquires the right to use an identified asset in exchange for the receipt of future lease payments. d.A lessor acquires the right to use an identified asset in exchange for making lease payments.

b.A lessee acquires the right to use an identified asset in exchange for making lease payments.

Which of the following disclosures is correct for lessors? a.When preparing its statement of cash flows, the lessor reports operating lease cash flows in the investing activities section. b.For sales-type and direct-financing leases, the lessor will recognize a lease receivable and unguaranteed residual asset (if any) on its balance sheet. c.For direct-financing leases, the lessor will recognize rental revenue on its income statement. d.For sales-types leases, the lessor will recognize rental revenue and depreciation expense on the income statement.

b.For sales-type and direct-financing leases, the lessor will recognize a lease receivable and unguaranteed residual asset (if any) on its balance sheet.

Which of the following is an advantage of leasing from a lessee's viewpoint? a.The lease is a way of indirectly making a sale. b.The asset can be acquired without having to make a substantial down payment. c.The risk of obsolescence may be increased. d.Off-balance-sheet financing may be avoided.

b.The asset can be acquired without having to make a substantial down payment.

Which of the following is not one of the five capitalization criteria under IFRS? a.The leased assets are of a specialized nature such that only the lessee can use them without major modifications being made. b.The lease transfers ownership of the asset to the lessee at the beginning of the term. c.The lease transfers ownership of the asset to the lessee at the end of the term. d.The lease term is for the major parts of the economic life of the asset.

b.The lease transfers ownership of the asset to the lessee at the beginning of the term.

Under amortization of leased assets, the lessee uses the estimated economic life because it expects to a.include a bargain purchase option. b.acquire ownership of the assets. c.depreciate the value of the assets. d.transfer ownership of the assets.

b.acquire ownership of the assets.

Any initial direct costs incurred by the lessor for a sales-type lease should be a.deferred and recognized as a reduction in the interest rate implicit in the lease. b.expensed in the same period that the lease receivable is recognized. c.directly charged (debited) to Retained Earnings. d.recorded as a prepaid asset and allocated to expenses over the lease term.

b.expensed in the same period that the lease receivable is recognized.

According to current GAAP, leased property recorded as a finance lease normally should be __________ on the balance sheet of the lessee and __________ on the balance sheet of the lessor. a.not included; included b.included; not included c.not included; not included d.included; included

b.included; not included

he lessor's __________ is the rate that, at the inception of the lease, the lessor would have incurred to borrow, over a similar term, the cash necessary to purchase the leased asset. a.discount rate b.incremental borrowing rate c.effective interest rate d.current market rate

b.incremental borrowing rate

Disclosure requirements for the lessor in an operating lease do not include a.the amount of total accumulated depreciation. b.minimum future rentals on noncancelable leases for each of the 10 succeeding fiscal years. c.total contingent rentals included in income for each period. d.cost and carrying amount.

b.minimum future rentals on noncancelable leases for each of the 10 succeeding fiscal years.

If a lease is of such a specialized nature that it has no alternative uses, the lessor will account for it as either a a.direct-financing lease or an indirect-financing lease. b.sales-type lease or a direct-financing lease. c.direct-financing lease or a specialized operating lease. d.sales-type lease or a specialized operating lease.

b.sales-type lease or a direct-financing lease.

Executory costs a.are the costs incurred by the lessor that are directly associated with negotiating and completing the lease transaction. b.should normally be borne by the party that is, in substance, the owner of the asset. c.are included in the minimum lease payments by the lessee. d.are always paid by the lessee.

b.should normally be borne by the party that is, in substance, the owner of the asset.

Disclosure requirements for the lessor in a direct-financing lease include a.total contingent rentals included in income for each period. b.unguaranteed residual values accruing to the benefit of the lessor. c.cost and carrying amounts by major classes of property. d.minimum future rentals on noncancelable leases for each of the 5 succeeding fiscal years.

b.unguaranteed residual values accruing to the benefit of the lessor.

Which of the following regarding an operating lease is true? a.An operating lease gives the lessee the ownership of the identified asset. b.From the lessee's perspective, an operating lease is, in substance, an asset acquisition and the incurrence of a related liability. c.An operating lease is a lease that does not transfer control of the identified asset. d.From a lessor's perspective, an operating lease is effectively a sale of an asset and the creation of a receivable.

c.An operating lease is a lease that does not transfer control of the identified asset.

Under amortization of leased assets, the lessee uses the estimated economic life because it expects to a.depreciate the value of the assets. b.transfer ownership of the assets. c.acquire ownership of the assets. d.include a bargain purchase option.

c.acquire ownership of the assets.

Area Reardon leases equipment to Spaulding that qualifies as a sales-type lease. The cost of the equipment is $150,000, and the fair value is $221,488.75. The lease term is 10 years with annual payments of $35,000 received at the beginning of each year. The estimated economic life of the equipment is also 10 years. The interest rate implicit in the lease is 12%. The collectability of the payments is probable. The journal entry recorded by Reardon on the lease commencement date includes a a.credit to Cost of Goods Sold for $150,000. b.debit to Lease Receivable for $150,000. c.debit to Lease Receivable for $221,488.75. d.credit to Equipment Leased to Others for $221,488.75.

c.debit to Lease Receivable for $221,488.75.

For the lessor, if the lease does not meet any of the lease classification criteria and does not meet either of the additional lease classification criteria, the lease is a(n) a.bargain purchase option. b.finance lease. c.operating lease. d.sales-type lease.

c.operating lease.

Under an operating lease, the lessor will not a.report depreciation on the leased asset. b.keep the leased asset on its balance sheet. c.record the rental receipts as rental expense. d.report the leased asset as a noncurrent asset separate from property, plant, and equipment.

c.record the rental receipts as rental expense.

All of the following criteria meet the requirements of a finance lease except a.it contains a bargain purchase option. b.the transfer of ownership of the property at the end of the lease term. c.the present value of the lease payments minus the residual value guaranteed by the lessee equals or exceeds substantially all of the fair value of the underlying asset. d.the lease term is for a major part of the remaining economic life of the underlying asset.

c.the present value of the lease payments minus the residual value guaranteed by the lessee equals or exceeds substantially all of the fair value of the underlying asset.

Polar Corporation leased a copier from Speedie Company. The lease term is 10 years, requires payments of $15,000 at the end of each year, and contains a bargain purchase option. At the end of the lease, Polar has a bargain purchase option of $5,000 to purchase the equipment. The equipment has a fair value at the inception of the lease of $125,000 and an estimated useful life of 15 years. The lease agreement stipulates that Speedie receive a rate of return of 9% each year, which is lower than Polar's incremental borrowing rate. The present value of an ordinary annuity for 15 years at 9% is 8.06069, and the present value of $1 for 15 years at 9% is 0.27454. What is the present value of the lease payments? a.$150,000 b.$119,537 c.$120,910 d.$122,283

d.$122,283 = ($15,000 × 8.06069) + ($5,000 × 0.27454) = $122,283.

Which of the following regarding the advantages and disadvantages of leasing is not true from the lessor's viewpoint? a.Leasing enables the lessor to earn income from the assets over the term of the lease. b.Leasing can allow the lessor to earn a profit on the residual value of the leased asset at the end of the lease term. c.Leasing provides a method of indirectly selling an asset while still maintaining many of the advantages of ownership. d.An advantage for the lessor is the risk of default (in the event the lessee fails to pay).

d.An advantage for the lessor is the risk of default (in the event the lessee fails to pay).

Which of the following is not a required disclosure by a lessee of an operating lease? a.Future minimum rental payments for each of the 5 succeeding fiscal years b.Rental expense for each period c.Total minimum rentals to be received in the future under noncancelable subleases d.Assets, accumulated depreciation, depreciation expense, and liabilities

d.Assets, accumulated depreciation, depreciation expense, and liabilities

Which of the following statements regarding the guaranteed residual value is true? a.Only the amounts of the guaranteed residual value that are likely to be owed to the lessor are included for purposes of classifying the lease as an operating or finance lease. b.At the end of the lease term, if the asset's fair value is greater than the guaranteed residual value, the lessee must pay the lessor the difference. c.The entire guaranteed residual value is included when measuring and recording the right-of-use asset and lease liability. d.At the end of the lease term, if the asset's fair value is greater than the guaranteed residual value, the lessee would return the asset to the lessor.

d.At the end of the lease term, if the asset's fair value is greater than the guaranteed residual value, the lessee would return the asset to the lessor.

Which of the following is not an advantage of leasing from a lessee's viewpoint? a.Off-balance-sheet financing may be practiced. b.The asset can be acquired without having to make a substantial down payment. c.The risk of obsolescence may be reduced. d.The lease is a way of indirectly making a sale.

d.The lease is a way of indirectly making a sale.

A sales-type lease is reported on the lessor's balance sheet as a.a liability. b.interest revenue. c.a contra liability. d.an asset

d.an asset.

The costs incurred directly for negotiating and originating an operating lease are a.unguaranteed costs. b.initial indirect costs. c.guaranteed costs. d.initial direct costs.

d.initial direct costs.

A lease that does not transfer substantially all the risks and benefits of ownership is a(n) a.minimum lease. b.specialized lease. c.finance lease. d.operating lease.

d.operating lease.