Leases

If the lessor meets any one of the five Group I criteria, then the lessor classifies the lease as a ________. If the lessor meets both Group II criteria, but none of the Group I criteria, then the lessor classifies the lease as a ________. If the transaction does not meet either the Group I or Group II criteria, then the lessor classifies the lease as a ________. A. sales−type lease; direct financing lease; operating lease B. sales−type lease; finance lease; operating lease C. operating lease; direct financing lease; sales−type lease D. operating lease; finance lease; sales−type lease

A

If the residual value of a leased asset turns out to be more than the amount guaranteed by the lessee, the: A. Lessor is not obligated to compensate the lessee for the excess. B. Lessee will reduce the last year's depreciation. C. Lessee must pay the lessor the amount of the excess. D. Lessor must compensate the lessee for the excess.

A

Which of the following statements is true? A. The right-of-use asset is increased by prepaid lease payments and the lessee's initial direct costs but reduced by lease incentives. B. The right-of-use asset is reduced by prepaid lease payments and the lessee's initial direct costs but increased by lease incentives. C. The right-of-use asset is reduced by the lessee's initial direct costs but increased by lease incentives and prepaid lease payments. D. The right-of-use asset is increased by prepaid lease payments but reduced by lease incentives and the lessee's initial direct costs

A

For a leased asset under a lease that qualifies as a finance lease because of a bargain purchase option, the depreciation period used by the lessee must be: A. The same period that was used by the lessor. B. The useful life to the lessee. C. The term of the lease. D. The original life of the asset.

B

The lease receivable amount includes the present value of A) rental payments plus the present value of the unguaranteed residual value only. B) rental payments plus the present value of guaranteed and unguaranteed residual values. C) rental payments only. D) rental payments plus the present value of the guaranteed residual value only.

B

What expense does a lessee record related to an operating lease? A) amortization expense B) lease expense C) interest expense D) amortization and interest expense

B

In computing the present value of the lease payments, the lessee should: A) use its incremental borrowing rate in all cases B) use both its incremental borrowing rate and the implicit rate of the lessor, assuming the implicit rate is known to the lessee C) use the implicit rate of the lessor, assuming the implicit rate is known to the lessee D) Use the implicit rate in all cases

C

What does the lessor report on the income statement under an operating lease? A. Interest expense, depreciation expense, unearned revenue B. Interest revenue, deferred expenses, depreciation expense C. Rental revenue, depreciation expense, deferred expenses D. Unearned revenue, deferred expenses

C

For a ________ lease, a lessor recognizes revenue on the sale and records the asset, ________. It also removes the leased asset from its accounts and records the ________. A. Operating lease, Lease Receivable, Cost of Goods Sold B. Sales-type lease, Inventory, Sales Revenue C. Finance lease, Lease Receivable, Cost of Goods Sold D. Sales-type lease, Lease Receivable, Cost of Goods Sold

D

For a sales-type lease, A) assets are depreciated by the lessor. B) the sales price includes the present value of the unguaranteed residual value. C) the present value of the guaranteed residual value is deducted to determine the cost of goods sold. D) the gross profit will be the same whether the residual value is guaranteed or unguaranteed.

D

From the perspective of the lessor, leases may be classified as either: A. Direct financing or sales-type. B. Operating, finance, or direct financing. C. Operating, sales-type, indirect financing. D. Operating, direct financing, or sales-type.

D

Lease payments include: A) fixed payments, unguaranteed residual value, and the bargain purchase option B) unguaranteed and guaranteed residual values plus the bargain purchase option C) fixed payments, unguaranteed and guaranteed residual values D) fixed payments, guaranteed residual value, and the bargain purchase option

D

Over what time period does the lessee amortize the leased asset transferred by the lessor? A. The lessee cannot amortize the leased asset over the lease term. The amortization of the leased asset can only be computed over the economic life of the asset using a different method as used by the lessee for property owned. This occurs if collectability is reasonably assured and there are no material uncertainties as to future costs. B. The lessee can amortize the leased asset over the lease term. The amortization of the leased asset can also be computed over the economic life of the asset using a different method as used by the lessee for property owned. This occurs if the lease term is greater than or equal to 75% of the economic life of the asset. C. The lessee cannot amortize the leased asset over the lease term. The amortization of the leased asset can only be computed over the economic life of the asset using the same method as used by the lessee for property owned. This occurs if the present value of the lease is greater than or equal to 90% of the fair value. D. The lessee can amortize the leased asset over the lease term. The amortization of the leased asset can also be computed over the economic life of the asset using the same method as used by the lessee for property owned. This occurs if the lease contains a bargain purchase option or a transfer of ownership clause.

D

The market value of an asset to be leased exceeds the original cost of the asset. The lease will contain a bargain purchase option. The collectability of lease payments is assured, and a third party guarantees the residual value. Therefore, the lease will be accounted for by the lessor as a: A. direct financing lease B. finance lease C. operating lease D. sales-type lease

D