ACTY 3110 Exam 2 Study Guide

The short-cut method may be applied only if the maximum possible lease term is less than or equal to six months shorter than the lessee's operating cycle less than or equal to twelve months more than twelve months

less than or equal to twelve months

A lease is a contractual agreement by which a(n) ________ provides a(n) _________ the right to use an asset for a specified period of time.

lessor; lessee

True or false: The incremental borrowing rate is the rate of return that the lessor desires to earn and is used to calculate the lease payments.

False

Smith Company leased equipment from FirstLease Corp. The cost of the equipment to FirstLease was $500,000. The present value of the expected residual value is $40,000. The lease includes six annual payments beginning on the first day of the lease. If the six lease payments are of an equal amount, what payment amount would provide FirstLease Corp with a return of 10%? $100,000 $96,018 $104,367 $105,619 $76,667

$96,018 Explanation: Fair Value = 500,000 Less: residual value = (40,000) Amount to be recovered = 460,000 /4.79079 (PVAD n=6, i=10%) Lease PMTs = 96,018

For tax years beginning before January 1, 2018, a net operating loss carryback can be applied to reduce previously reported taxable income in the _____ prior year(s). 2 10 1 20

2

7. BBB Leasing purchased a machine for $250,000 and leased it to Jack Tupp Auto Repair on January 1, 2021. Lease description: Quarterly rental payments $16,315 at beginning of each period Lease term 5 years (20 quarters) No residual value; no BPO Economic life of machine 5 years Implicit interest rate 12% Fair value of asset $250,000 What is the balance in the lease payable account after the April 1, 2021, lease payment? A) $224,381. B) $233,685. C) $232,569. D) $241,185.

A) $224,381.

Which of the following creates a deferred tax liability? A) An unrealized loss from recording inventory at lower of cost or market. B) Accelerated depreciation in the tax return. C) Estimated warranty expense. D) Subscriptions collected in advance.

B) Accelerated depreciation in the tax return.

For the current year ($ in millions), Centipede Corp. had $80 in pretax accounting income. This included warranty expense of $7 and $20 in depreciation expense. Two million of warranty costs were incurred, and depreciation deductions in the tax return amounted to $35. In the absence of other temporary or permanent differences, what was Centipede's income tax payable currently, assuming a tax rate of 25%? A) 14.5 million. B) 25.2 million. C) 17.5 million. D) 15.75 million.

C) 17.5 million. Explanation: Accounting income $80.0 Temporary difference Depreciation ($35 - 20) (15.0) Warranty expense ($7 - 2) 5.0 Taxable income $70.0 Enacted tax rate 25% Tax payable currently $17.5

Brindle Corp. is in its first year of operations and has a net operating loss for tax purposes of $100,000. Brindle expects to be profitable within the next 2 years. The enacted income tax rate is 40%. Which of the following entries are included to record the NOL carryforward? Credit income tax benefit $40,000. Debit deferred tax asset $40,000. Credit deferred tax liability $40,000. Credit taxes payable $40,000. Debit tax expense $40,000.

Credit income tax benefit $40,000. Debit deferred tax asset $40,000.

On January 1, 20X1, Tucker Company leases equipment from Franz Inc. over the equipment's entire estimated useful life of five years. Franz acquired the asset for $431,213 and normally utilizes an 8% interest rate for these types of transactions. The annual rental payment is $100,000; the first payment is due on January 1, 20X1. At the commencement of the lease, Franz should debit No journal entry is necessary at the commencement of the lease Lease receivable for $100,000 Lease receivable for $431,213

Lease receivable for $431,213

What is another name for negative taxable income? Deferred tax asset Loss tax expense Net operating loss Deferred tax liability

Net operating loss

Which of the following best describes the period over which the right-of-use asset is amortized when ownership transfers at the end of the lease? The asset's estimated useful life The term of the lease The asset's estimated useful life or the lease term, whichever is shorter

The asset's estimated useful life

Which of the following are criteria for classification as a finance lease? (Select all that apply.) The asset will have an alternative use to the lessor at the end of the lease term. The lease includes a purchase option the lessee is reasonably certain to exercise. Ownership of the asset is retained by the lessor. The present value of the total lease payments is less than substantially all of the fair value of the asset. The present value of the total lease payments is greater than substantially all of the fair value of the asset. Ownership of the asset transfers to the lessee.

The lease includes a purchase option the lessee is reasonably certain to exercise. The present value of the total lease payments is greater than substantially all of the fair value of the asset. Ownership of the asset transfers to the lessee.

A permanent difference is a difference between taxable income and pretax accounting income. always included in taxable income. recognized only on the balance sheet. recognized for defered tax assets and liabilities.

a difference between taxable income and pretax accounting income.

Ludwig Corporation leases a machine to Kluge Corporation under a three-year lease agreement determined to be a finance/sales-type lease. At the inception of the lease, Ludwig Corporation should record a lease receivable. a lease payable. lease expense. a right-to-use asset.

a lease receivable.

Depending on the nature of the leasing arrangement, a lease is accounted for as a rental agreement only. as a rental or a purchase/sale. as a purchase/sale only.

as a rental or a purchase/sale.

A net operating loss _____ must be applied to the earlier year first and then brought forward to the next year. carryforward carryback and carryforward carryback

carryback

Lease Corp leases equipment to Western Company in a sales-type lease. The present value of the lease payments is $450,000. The lease includes an unguaranteed residual value with a present value of $50,000. Which of the following complete the journal entry for Lease Corp to record this lease? debit lease receivable $450,000 credit equipment $450,000 credit equipment $500,000 debit lease receivable $500,000

credit equipment $500,000 debit lease receivable $500,000

At the inception of a finance lease for computer equipment, the lessee should credit lease payable debit lease payable debit right-of-use asset debit computer equipment debit lease receivable

debit right-of-use asset credit lease payable

On January 1, 20X1, Mitchell Company leases equipment from Donelson Corp. for the equipment's entire useful life of six years. Donelson acquired the asset for $239,826 and normally utilizes an 5% interest rate for these types of transactions. The annual lease payment is $45,000. For the year ended 20X1, Mitchell should allocate the cost of the right-of-use asset by debiting depreciation expense for $45,000 debiting amortization expense of $39,971 no amortization is necessary because Donelson is recording depreciation on the asset.

debiting amortization expense of $39,971

A lease structured as an installment purchase is called a(n) ________ lease by the lessee.

finance

Which of the following are required disclosures for lessees and lessors? future payments for total remaining years description of the leasing arrangements future payments in each of the next 5 years identity of the lessee and lessor

future payments for total remaining years description of the leasing arrangements future payments in each of the next 5 years Basically everything except identities of lessees and lessors

Sometimes a lease agreement includes a commitment by the lessee that the lessor will recover a specified amount when the asset is returned. This is known as guaranteed interest value. guaranteed residual value. bargain purchase option. unguaranteed residual value.

guaranteed residual value

A contract in which an owner provides a user the right to use an asset in return for periodic cash payments over a period of time is called a(n) contingent contract. indenture. direct purchase plan. lease.

lease.

The _____ must disclose their lease transactions and regular transactions separately. lessor both the lessee and lessor lessee

lessor

A lease that is more true to the nature of a rental agreement is called a(n) ________ lease.

operating

If a lease does not meet any of the criteria to be classified as a finance or sales-type lease, it is classified as a(n) _________ lease.

operating

When the rights and responsibilities of ownership are retained by the lessor, the lease is classified as a(n) ______ lease. operating sales-type capital finance

operating

If a lease contains a bargain purchase option, the lessee should amortize the right-of-use asset over the useful life of the asset or the lease term, whichever is shorter. the useful life of the asset or the lease term, whichever is longer. the useful life of the asset. the lease term.

the useful life of the asset.

Which of the following are required disclosures related to leases? variable lease cost nonlease payments residual values identity of the lessor identity of the lessee

variable lease cost nonlease payments residual values

Using information from question 78, what should Kent report as the current portion (income tax payable) of its income tax expense in the year 2021? A) $38,250. B) $41,250. C) $45,000. D) None of these answer choices are correct.

A) $38,250. Explanation: $153,000 × 25% = $38,250

How are deferred tax assets and liabilities classified on the balance sheet? permanent current operating temporary nonoperating noncurrent

noncurrent

Reconciliation of pretax accounting income and taxable income: Pretax accounting income $180,000 Permanent differences (15,000) 165,000 Temporary difference-depreciation (12,000) Taxable income $153,000 Cumulative future taxable amounts all from depreciation temporary differences: As of December 31, 2020 $13,000 As of December 31, 2021 $25,000 The enacted tax rate was 25% for 2020 and thereafter. What should be the balance in Kent's deferred tax liability account as of December 31, 2021? A) $5,200. B) $6,250 C) $25,000. D) None of these answer choices are correct.

B) $6,250 Explanation: $25,000 × 25% = $6,250

Which of the following usually results in an increase in a deferred tax liability? A) Accrual of estimated operating expenses. B) Revenue collected in advance. C) Prepaid operating expenses, currently deductible. D) All of these answer choices are correct.

C) Prepaid operating expenses, currently deductible.

13. The valuation allowance account that is used in conjunction with deferred tax assets is a(n): A) Liability. B) Component of shareholders' equity. C) Asset. D) Contra asset.

D) Contra asset.

A net operating loss _____ create(s) a deferred tax asset. carryforward carryback and carryforward carryback

carryforward

A bargain purchase option is a provision in a lease contract that allows the lessee to purchase the property at any time during the lease term. requires the lessee to purchase the asset at the end of the lease term. gives the lessee the right to purchase the leased asset at a price significantly less than the expected fair value of the property. requires the lessor to repurchase the asset from the lessee at the end of the lease term.

gives the lessee the right to purchase the leased asset at a price significantly less than the expected fair value of the property.

The __________ residual value is a commitment by the lessee that the lessor will recover a specified residual value at the end of the lease term.

guaranteed

The desired rate of return for the lessor when determining the lease payments is referred to as the _____ interest rate. incremental borrowing implicit simple

implicit

The effective interest rate of return the lease payments provide the lessor is referred to as the simple interest rate. incremental borrowing rate. implicit rate.

implicit rate

Manning Insurance is a property and casualty insurance company in its fifth year of operations. The income tax rate is 40%. Manning had taxable income (loss) as follows: Year 1 $10,000 Year 2 $40,000 Year 3 $30,000 Year 4 $20,000 Year 5 ($300,000) The operating loss for financial reporting purposes is $300,000 in year 5. Assuming Manning is allowed to carryback its NOLs for two years, calculate the net loss after taxes for financial reporting income. $150,000 $180,000 $300,000 $250,000

$180,000 Explanation: 300,000 (NOL) * 40% (tax rate) = 120,000 (income tax benefit) 300,000 (NOL) - 120,000 (income tax benefit) = 180,000

Olaf Corp. is in its third year of operations. Olaf had taxable income (loss) as follows: Year 1 $10,000 Year 2 $(50,000) Year 3 $20,000 The NOL carryforward at the end of Year 3 is $20,000 $24,000 $30,000 $34,000

$34,000 Explanation: 50,000 yr. 2 NOL - (20,000 taxable income * 80%) = 34,000

Rocky Corp. receives rent in advance of $100,000 in 20X1. The timing difference is expected to reverse $30,000 in 20X2 and $70,000 in 20X3. The enacted tax rates are 30% in 20X1 and 20X2, and 40% in 20X3. What is the amount in the deferred tax asset account at December 31, 20X1? $30,000 $21,000 $37,000 $28,000

$37,000

In a finance lease: A) the lessee records an asset and a liability for the present value of lease payments. B) the lessor records an asset and a liability for the present value of lease payments. C) the lessee records an asset and a liability for the total of the lease payments. D) the lessor records an asset and a liability for the total of the lease payments.

A) the lessee records an asset and a liability for the present value of lease payments.

M. Company leases an asset from K. Corp. Information regarding the lease: • Fair value of the asset: $800,000. • Useful life of the asset: 12 years with no salvage value. • Lease term is 10 years. • Annual lease payments are $120,000 due at the beginning of each period. • Implicit interest rate: 11%. • M. Co. can purchase the asset at the end of the lease period for $100,000. What type of lease is this for M. Corp.? A) Operating. B) Finance. C) Short term. D) Long term.

B) Finance.

Smith Company receives $500,000 of subscription revenue in advance during 20X1. The subscription revenue is not included on the income statement, but is reported for tax purposes in 20X1. $250,000 will be recognized in 20X2 and $250,000 in 20X3. Smith Company is subject to a 40% tax rate. What is the amount of the deferred tax asset at the end of 20X2? $200,000 $100,000 $500,000 $250,000

$100,000 Explanation: 250,000 recognized in 20X2 * 40% tax rate

Persimmon Corp. is a property and casualty insurance company in its fourth year of operation. Persimmon had taxable income of $20,000 in year 1, $30,000 in year 2, and $50,000 in year 3. In year 4, Persimmon incurred a $400,000 net operating loss. Persimmon is allowed to carry its NOLs back two years. Assuming the tax rate is 40% and Persimmon's pretax accounting loss was $400,000, the net loss for financial reporting purposes in year 4 is $160,000. $240,000. $320,000. $400,000.

$240,000. Explanation: 400,000 NOL - (400,000 NOL * 40% tax rate) = 240,000

Liberty Corp. receives rent in advance of $100,000 in 20X1. The timing difference is expected to reverse $40,000 in 20X2 and $60,000 in 20X3. The enacted tax rates are 20% in 20X1, 25% in 20X2, and 30% in 20X3. What is the amount in the deferred tax asset account at December 31, 20X1? $25,000 $28,000 $8,000 $30,000 $20,000

$28,000 Explanation: (40,000 * 25%)+(60000 * 30%) = 28,000

Peachtree Corp. is a merchandiser in its fourth year of operations. Peachtree had taxable income of $20,000 in year 1, $30,000 in year 2, and $50,000 in year 3. In year 4, Peachtree incurred a $400,000 net operating loss for tax purposes. The NOL carryforward is $480,000. $400,000. $300,000. $320,000.

$400,000.

Samuel Company leased equipment from Lease Corp. The cost of the equipment to Lease Corp was $300,000. Lease Corp will require Samuel to make the first payment on the day of the lease signing (January 1 of Year 1), with the next four payments due on January 1 of Years 2 - 5. At the end of Year 5, the equipment is expected to have a residual value, present value being $50,000. The estimated useful life of the equipment is seven years. If the five lease payments are of an equal amount, what payment amount provides Lease Corp with a return of 6%? $50,000 $55,990 $60,000 $41,838 $35,714

$55,990

Smith leases a piece of equipment from Marvin Company. The lease has a bargain purchase option which is expected to be exercised at the end of the lease. The useful life of the equipment is 10 years and the lease term is 8 years. Which number of years should be used to compute amortization? 10 8 18

10 Explanation: The lessee normally amortizes its right-of-use asset over the term of the lease. But if ownership transfers by contract or by the expected exercise of a purchase option, the lessee will have the asset beyond the lease term, and will amortize it over the longer useful life.

Jagadison Co. leases computer equipment to customers under sales-type leases. The equipment has no residual value at the end of the lease and the leases do not contain purchase options. Jagadison desires a return of 8% interest on a five-year lease of equipment with a fair value of $970,425. The present value of an annuity due of $1 at 8% for five years is 4.313. What is the total amount of interest revenue that Jagadison will earn over the life of the lease? A) $154,575 B) $225,000 C) $388,080 D) $418,350

A) $154,575

The financial reporting carrying value of Boze Music's only depreciable asset exceeded its tax basis by $150,000 at December 31, 2021. This was a result of differences between straight-line depreciation for financial reporting purposes and accelerated depreciation for tax purposes. The asset was acquired earlier in the year. Boze has no other temporary differences. The enacted tax rate is 25% for 2021 and 30% thereafter. Boze should report the deferred tax effect of this difference in its December 31, 2021, balance sheet as: A) A liability of $45,000. B) A liability of $37,500. C) An asset of $45,000. D) An asset of $37,500.

A) A liability of $45,000. Explanation: $150,000 × 30% = $45,000

Damon is the lessee in connection with a finance lease. Damon will not record: A) Depreciation expense. B) Amortization expense. C) Interest expense. D) A right-of-use asset.

A) Depreciation expense. Explanation: In a finance lease, the lessee records amortization expense on its right-of-use asset.

Which of the following statements are true with respect to permanent differences? Recognized only on the balance sheet. Affect the effective tax rate. Lead to the creation of deferred tax assets and liabilities. Differences between taxable income and pretax accounting income. Caused by transactions that will never affect taxable income.

Affect the effective tax rate. Differences between taxable income and pretax accounting income. Caused by transactions that will never affect taxable income.

On January 1, 2021, Green Co. recorded a right-of-use asset of $270,360 in an operating lease. The lease calls for ten annual payments of $40,000 at the beginning of each year. The interest rate charged by the lessor was 10%. The balance in the right-of-use asset at December 31, 2021, will be: A) $270,360. B) $253,396. C) $243,324. D) $230,360.

B) $253,396. Explanation: In an operating lease, the lessee amortizes its right of use asset at an amount so that the total of interest expense and amortization will be a straight-line amount equal to the annual payments, $40,000 per year. Interest the first year will be 10% × ($270,360 − $40,000) = $23,036. So, amortization will be $40,000 − $23,036 = $16,964. The year-end balance, then, will be $270,360 − $16,964 = $253,396.

The five criteria provided in GAAP for distinguishing a finance lease from an operating lease do not include: A) The agreement specifies that ownership transfers at the end of the lease term. B) The collectibility of the lease payments must be reasonably predictable. C) The agreement grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise. D) The noncancelable lease term is for the major part of the remaining economic life of the underlying asset.

B) The collectibility of the lease payments must be reasonably predictable.

Using information from question 78, what would Kent's income tax expense be in the year 2021? A) $35,250. B) $38,250. C) $41,250. D) None of these answer choices are correct

C) $41,250. Explanation: Income tax expense (to balance) 41,250 Deferred tax liability *3,000 Income tax payable ($153,000 × 25%) 38,250 *[($25,000 × 25%) - ($13,000 × 25%)]

Assume that Peridot operates in an industry for which NOL carryback is allowed. In its first four years of operations Peridot reported the following operating income (loss) amounts: 2018 $150,000 2019 100,000 2020 (425,000) 2021 450,000 There were no other items affecting deferred income taxes in any year. In 2020, Peridot elected to carry back its operating loss. The enacted income tax rate was 25%. In its 2021 income statement, what amount should Peridot report as income tax expense? A) $80,000. B) $110,000. C) $170,000. D) $112,500.

D) $112,500. Explanation: The NOL in 2020 that is available for carryforward was reflected in a 2020 tax benefit and deferred tax asset [($425,000 - $150,000 - $100,000) × 25% = $43,750] which reverse when used in 2021. 100% of the NOL is available for carryback. 2021 journal entry when DTA is used up due to carry forward resulting in tax benefit: Income tax expense (to balance) 112,500 Deferred tax asset 43,750 Income tax payable [($450,000 - 175,000) × 25%] 68,750

Regina Corp. is in its first year of operations and has a net loss of $50,000. Regina expects to be profitable within the next three years. The enacted income tax rate is 21%. Which of the following entries is included in the journal entry to record the NOL carryforward? Debit income tax expense $10,500. Credit income tax benefit $50,000. Credit deferred tax liability $39,500. Debit deferred tax asset $10,500.

Debit deferred tax asset $10,500. Explanation: 50,000 * 21% = 10,500 DTA

True or false: When a bargain purchase option is present, the lessor subtracts the future value of the exercise price from the amount to be recovered to determine the amount to be recovered through rental payments.

False

True or false: When a phased-in change in tax rates is scheduled to occur, all future temporary differences are multiplied by the current tax rate to determine deferred tax liability and/or asset.

False

On January 1, Smith Co leased equipment from Bentley Corp. The lease agreement includes four annual payments beginning at the inception of the lease. The estimated useful life of the equipment is 7 years. The lease does not contain a purchase option. The present value of the minimum lease payments is $400,000. The fair value of the asset is $500,000. What type of lease is this for Smith Co? Operating lease Sales-type lease Direct financing lease Finance lease

Operating lease

On January 1, 20X1, Tucker Company leases equipment from Franz Inc. over the equipment's entire estimated useful life of five years. Franz acquired the asset for $431,213 and normally utilizes an 8% interest rate for these types of transactions. The annual rental payment is $100,000. Tucker should allocate the cost of the right-of-use asset annually by (round to a whole dollar) debiting amortization expense of $100,000 debiting depreciation expense for $86,243 no journal entry is necessary because the lessee recognizes depreciation debiting amortization expense for $86,243 debiting depreciation expense for $100,000

debiting amortization expense for $86,243 Explanation: 431,213 (fair value)/5 years (useful life) = 86,243 (amortization expense)

On January 1, 20X1, Tucker Company leases equipment from Franz Inc. over three years of the equipment's five-year estimated useful life. Franz acquired the asset for $431,213 and normally utilizes an 8% interest rate for these types of transactions. The present value of the lease payments is $357,710. The annual lease payment is $100,000; the first payment is due on January 1, 20X1. Franz should recognize the first lease payment by (Select all that apply): crediting cash for $100,000 debiting lease payable for $100,000 debiting cash for $100,000 debiting lease payable for $79,383 crediting deferred lease revenue for $100,000 debiting interest expense for $20,617

debiting cash for $100,000 crediting deferred lease revenue for $100,000

On January 1, 20X1, Tucker Company leases equipment from Franz Inc. over three years of the equipment's five-year estimated useful life. Franz acquired the asset for $431,213 and normally utilizes an 8% interest rate for these types of transactions. The present value of the lease payments is $357,710. The annual lease payment is $100,000; the first payment is due on January 1, 20X1. Tucker should recognize the first lease payment by (Select all that apply) debiting lease payable for $79,383 debiting cash for $100,000 debiting lease payable for $100,000 debiting interest expense for $20,617 crediting cash for $100,000 crediting deferred lease revenue for $100,000

debiting lease payable for $100,000 crediting cash for $100,000

Deferred tax liabilities should be netted against deferred tax assets. net operating losses. tax expense for the period.

deferred tax assets.

The total of all future taxable amounts is multiplied by the _____ tax rate to determine the appropriate balance for the deferred tax liability account. historical current enacted

enacted

The lessee amortizes the right-of-use asset over the asset's useful life, when (Select all that apply.) exercise of a purchase option is reasonably certain. exercise of a purchase option is uncertain. ownership does not transfer at the end of the lease term. ownership transfers at the end of the lease term.

exercise of a purchase option is reasonably certain. ownership transfers at the end of the lease term.

An additional cash payment is _____ when a bargain purchase option is included in the lease agreement. unlikely possible expected

expected

On January 1, 20X1, Tucker Company leases equipment from Franz Inc. over three years of the equipment's five-year estimated useful life. Franz acquired the asset for $431,213 and normally utilizes an 8% interest rate for these types of transactions. The present value of the lease payments is $357,710. The annual lease payment is $100,000; the first payment is due on January 1, 20X1. Tucker should recognize the second lease payment by debiting (round to the nearest whole dollar and select all that apply) lease payable for $79,383 interest expense for $28,617 interest expense for $20,617 lease payable for $71,383

interest expense for $20,617 lease payable for $79,383

Which of the following items are permanent differences? (Select all that apply.) life insurance proceeds on an insured executive interest on municipal bonds bad debt expense depreciation deducted on tax return in excess of depreciation expense

life insurance proceeds on an insured executive interest on municipal bonds

The short-cut method of accounting for leases may be used if the lease has a lease term (including any options to renew or extend) of twelve months or less. may be used if the lease has a lease term of twelve months with an option to renew the lease at the end of twelve months. may be used if the lease has a lease term of twelve months or less with an option for the lessee to purchase the asset.

may be used if the lease has a lease term (including any options to renew or extend) of twelve months or less.

Selma leases equipment from ABC Corp. The 4-year lease requires payments of $10,000 per year, beginning at the inception of the lease. The fair value of the equipment at the inception of the lease is $100,000. The equipment has a 6-year life. Selma's incremental borrowing rate is 6%. The lease does not transfer title and does not have a bargain purchase option. How should the lease be classified by Selma? sales-type operating finance

operating Explanation: No ownership transfer, no BPO, lease term is not >= 75% of asset life, PV of lease payments is not greater than or equal to 90% fair value, no specialized nature In short, none of the criteria for a finance lease are met.

The two basic lease classifications by a lessee are sales-type and direct-financing. operating and finance. investing and financing. current and noncurrent.

operating and finance

The two basic lease classifications by a lessor are investing and financing. operating and direct-financing. operating and sales-type. current and noncurrent.

operating and sales-type.

When recording a finance lease, the amount initially recognized for the right-of-use asset is the present value of the lease payments cost basis of the leased asset sum of the future lease payments fair value of the leased asset

present value of the lease payments

Selling profit exists in a sales-type lease when the cost of the asset is greater than the present value of the lease payments. carrying value of the asset is greater than the present value of the lease payments. cost of the asset is greater than the fair value. present value of the lease payments is greater than the cost of the asset.

present value of the lease payments is greater than the cost of the asset.

A net operating loss carryforward reduces taxable income in future years. creates deferred tax liabilities in future years. reduces tax credits in future years. increases tax deductions in future years.

reduces taxable income in future years.

The estimated commercial value of leased property at the end of the lease term is known as residual value. lease value. present value. bargain value.

residual value

When the lessor calculates the periodic lease payments, the present value of the bargain purchase option should be subtracted from the amount to be recovered through periodic rental payments. ignored in the calculation of periodic rental payments. added to the amount to be recovered through periodic rental payments.

subtracted from the amount to be recovered through periodic rental payments.

A net operating loss occurs when: financial reporting income is greater than taxable income. taxable income is less than tax-deductible expenses. income is not subject to tax but is subject to financial reporting.

taxable income is less than tax-deductible expenses.

An operating lease is defined as a lease: that allows the lessee to use the asset in the capacity of an owner. that does not meet any of the criteria of a finance or sales-type lease. in which the lessee must return the asset at the end of the lease. in which the lessor pays for maintenance fees for the asset.

that does not meet any of the criteria of a finance or sales-type lease.

When a phased-in change in tax rates is scheduled to occur, the tax rate of each future year is multiplied by the amounts reversing in each of those years. the highest tax rate out of all years affected is multiplied by the amounts reversing in all future years. the tax rate in the current year is multiplied by the amounts reversing in all future years.

the tax rate of each future year is multiplied by the amounts reversing in each of those years.