ACCT302 MC21

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Lease payments include:I. fixed payments.II. variable payments based on an index.III. a bargain purchase option.IV. a guaranteed residual value. II, III, and IV. I, II, and III. I, II, and IV. I, II, III, and IV.

I, II, III, and IV.

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, IV. I, II, and III. I, III, and IV. II, III, and IV.

I, II, and III.

Which of the following describes the lease term test? If the lease term is 90% or more of the economic life, it is a finance lease. If there is a bargain purchase option during the lease term, it is a finance lease. If the asset has an alternative use during the lease term, it is a finance lease. If the lease term is 75% or more of the economic life, it is a finance lease.

If the lease term is 75% or more of the economic life, it is a finance lease.

Which of the following is a criterion for a lease to be classified as a finance lease in the books of a lessee? The lease does not transfer ownership of the property to the lessee. The present value of the minimum lease payments is 70% or more of the fair value of the leased property. The lease contains a bargain purchase option. The lease term is equal to 65% or more of the estimated useful life of the leased property.

The lease contains a bargain purchase option.

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

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

In a finance lease, the lessee records interest expense only. amortization expense only. amortization expense and interest expense. lease expense only.

amortization expense and interest expense.

A single lease expense is recognized on the income statement for an operating lease. a finance lease. both a finance lease and an operating lease. neither a finance lease or an operating lease.

an operating lease.

A lessee with a finance lease containing a bargain purchase option should depreciate the leased asset over the asset's remaining economic life. term of the lease. life of the asset or the term of the lease, whichever is shorter. life of the asset or the term of the lease, whichever is longer.

asset's remaining economic life.

In an operating lease, the lessee records lease expense. amortization expense and lease expense. interest expense. amortization expense.

lease expense.

The lessee records a finance lease as an asset and a liability at the: lower of the present value of the minimum lease payments or the fair market value of the leased asset. total amount of the minimum lease payments. fair market value of the leased asset at the lease inception. present value of the minimum lease payments.

lower of the present value of the minimum lease payments or the fair market value of the leased asset.

From the lessee's perspective, in the earlier years of a lease, operating leases will cause debt to increase, compared to finance leases. finance leases will cause debt to increase, compared to operating leases. operating leases will cause income to increase, compared to finance leases. finance leases will enable the lessee to report higher income, compared to operating leases.

operating leases will cause income to increase, compared to finance leases.

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

present value of the lease payments.

The basic difference between a direct-financing lease and a sales-type lease is the allocation of initial direct costs by the lessor to periods benefited by the lease arrangements. amount of the depreciation recorded each year by the lessor. manner in which rental receipts are recorded as rental income. recognition of the profit on the sale.

recognition of the profit on the sale.

When a depreciable asset is leased under an operating lease, the lessor: must use activity-based depreciation. never recognizes depreciation. records depreciation in the normal manner. defers depreciation until the lease expires.

records depreciation in the normal manner.

The lease receivable amount includes the present value of rental payments only. rental payments plus the present value of the unguaranteed residual value only. rental payments plus the present value of the guaranteed residual value only. rental payments plus the present value of guaranteed and unguaranteed residual values.

rental payments plus the present value of guaranteed and unguaranteed residual values

A lease that involves a manufacturer's or dealer's profit is a (an): sales-type lease. capital lease. operating lease. direct-financing lease.

sales-type lease.

On December 31, 2021, Sunland Corporation leased a plane from Bell Company for an 7-year period expiring December 31, 2028. Equal annual payments of $456000 are due on December 31 of each year, beginning with December 31, 2021. The lease is properly classified as a finance lease on Sunland's books. The present value at December 31, 2021 of the 8 lease payments over the lease term discounted at 9% is $2751026. Assuming the first payment is made on time, the amount that should be reported by Sunland Corporation as the lease liability on its December 31, 2021 balance sheet is $2542619. $2501579. $2295026. $2751026.

$2295026.

In computing the present value of the minimum lease payments, the lessee should use its incremental borrowing rate in all cases. 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. 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. none of these answers are correct.

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.

In computing the present value of lease payments, the lessee should use the lessee's incremental borrowing rate unless the lessor's implicit interest rate is known to the lessee. expected rate of return settlement rate none of these answers are correct.

use the lessee's incremental borrowing rate unless the lessor's implicit interest rate is known to the lessee.

All of the following are disclosures required of the lessor except: Description and amounts of leased assets by major balance sheet classification and related liabilities. Amounts receivable and unearned revenues under lease agreements. The amount of lease revenues and expenses reported in the income statement each period. All of these answers are correct.

All of these answers are correct.


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