Corporate Accounting 2 Final

Which of the following are reasons why a company is involved in leasing to other companies? I. Interest revenue. II. High residual values. III. Tax incentives. IV. Guaranteed bargain purchase options.

I, II, and III.

Minimum lease payments may include: I. a penalty for failure to renew. II. executory costs. III a bargain purchase option. IV. a guaranteed residual value.

I, III, and IV.

While only certain leases are currently accounted for as a sale or purchase, there is theoretical justification for considering all leases to be sales or purchases. The principal reason that supports this idea is that A. a lease reflects the purchase or sale of a quantifiable right to the use of property. B. during the life of the lease the lessee can effectively treat the property as if it were owned. C. all leases are generally for the economic life of the property and the residual value of the property at the end of the lease is minimal. D. at the end of the lease the property usually can be purchased by the lessee.

A. a lease reflects the purchase or sale of a quantifiable right to the use of property.

The covenants and other terms of the agreement between the issuer of bonds and the lender are set forth in the A. bond indenture. B. bond debenture. C. registered bond. D. bond coupon.

A. bond indenture.

The residual interest in a corporation belongs to the A. common stockholders. B. preferred stockholders. C. creditors. D. management.

A. common stockholders.

An example of an item which is not a liability is A. dividends payable in stock. B. the portion of long-term debt due within one year. C. advances from customers on contracts. D. accrued estimated warranty costs.

A. dividends payable in stock.

Bond interest paid is equal to the A. face amount of the bonds multiplied by the stated interest rate. B. face amount of the bonds multiplied by the effective-interest rate. C. carrying value of the bonds multiplied by the effective-interest rate. D. carrying value of the bonds multiplied by the stated interest rate.

A. face amount of the bonds multiplied by the stated interest rate.

If bonds are issued initially at a premium and the effective-interest method of amortization is used, interest expense in the earlier years will be A. greater than if the straight-line method were used. B. greater than the amount of the interest payments. C. less than if the straight-line method were used. D. the same as if the straight-line method were used.

A. greater than if the straight-line method were used.

The methods of accounting for a lease by the lessee are A. operating and capital lease methods. B. operating, sales, and capital lease methods. C. operating and leveraged lease methods. D. none of these answers are correct.

A. operating and capital lease methods.

Lessees prefer to account for their leases as operating lease because: A. this decreases the amount of liability reported. B. this increases the amount of total assets. C. this increases their debt to total equity ratio. D. this decreases the income tax expense.

A. this decreases the amount of liability reported.

Which of the following is a correct statement of one of the capitalization criteria? A. The lease contains a purchase option. B. The lease term is equal to or more than 75% of the estimated economic life of the leased property. C. The minimum lease payments (excluding executory costs) equal or exceed 90% of the fair value of the leased property. D. The lease transfers ownership of the property to the lessor.

B. The lease term is equal to or more than 75% of the estimated economic life of the leased property.

Bonds for which the owners' names are not registered with the issuing corporation are called A. secured bonds. B. bearer bonds. C. debenture bonds. D. term bonds.

B. bearer bonds.

The term used for bonds that are unsecured as to principal is A. callable bonds. B. debenture bonds. C. mortgage bonds. D. indebenture bonds.

B. debenture bonds.

Bonds that pay no interest unless the issuing company is profitable are called A. collateral trust bonds. B. income bonds. C. debenture bonds. D. revenue bonds.

B. income bonds.

An essential element of a lease is that the A. term of the lease is substantially equal to the economic life of the leased property. B. lessor conveys less than his or her total interest in the property. C. lessee provides a sinking fund equal to one year's lease payments. D. property that is the subject of the lease agreement must be held for sale by the lessor prior to the drafting of the lease agreement.

B. lessor conveys less than his or her total interest in the property.

The preemptive right of a common stockholder is the right to A. share proportionately in corporate assets upon liquidation. B. share proportionately in any new issues of stock of the same class. C. exclude preferred stockholders from voting rights. D. receive cash dividends before they are distributed to preferred stockholders.

B. share proportionately in any new issues of stock of the same class.

In computing depreciation of a leased asset, the lessee should subtract A. an unguaranteed residual value and depreciate over the term of the lease. B. an unguaranteed residual value and depreciate over the life of the asset. C. a guaranteed residual value and depreciate over the term of the lease. D. a guaranteed residual value and depreciate over the life of the asset.

C. a guaranteed residual value and depreciate over the term of the lease.

If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will A. be the same as what it would have been had the effective-interest method of amortization been used. B. be less than the stated (nominal) rate of interest. C. exceed what it would have been had the effective-interest method of amortization been used. D. be less than what it would have been had the effective-interest method of amortization been used.

C. exceed what it would have been had the effective-interest method of amortization been used.

If bonds are issued between interest dates, the entry on the books of the issuing corporation could include a A. credit to Unearned Interest. B. debit to Interest Payable. C. credit to Interest Receivable. D. credit to Interest Expense.

D. credit to Interest Expense.

The amount to be recorded as the cost of an asset under capital lease is equal to the A. present value of the minimum lease payments. B. present value of the minimum lease payments plus the present value of any unguaranteed residual value. C. carrying value of the asset on the lessor's books. D. present value of the minimum lease payments or the fair value of the asset, whichever is lower.

D. present value of the minimum lease payments or the fair value of the asset, whichever is lower.

Under the effective-interest method of bond discount or premium amortization, the periodic interest expense is equal to A. the market rate of interest multiplied by the face value of the bonds. B. the stated (nominal) rate of interest multiplied by the face value of the bonds. C. the stated rate multiplied by the beginning-of-period carrying amount of the bonds. D. the market rate multiplied by the beginning-of-period carrying amount of the bonds.

D. the market rate multiplied by the beginning-of-period carrying amount of the bonds.

In computing the present value of the minimum lease payments, the lessee should A. use the implicit rate in all cases. B. use either its incremental borrowing rate or the implicit rate of the lessor, whichever is higher, assuming that the implicit rate is known to the lessee. C. use its incremental borrowing rate in all cases. D. use either its incremental borrowing rate or the implicit rate of the lessor, whichever is lower, assuming that the implicit rate is known to the lessee.

D. use either its incremental borrowing rate or the implicit rate of the lessor, whichever is lower, assuming that the implicit rate is known to the lessee.