ACC 302- Final Exam Concept

In computing the present value of the payments under the present value test, the lessee must use a discount rate. Normally, use of the lessee's incremental borrowing rate is appropriate unless: A. the lessee's incremental borrowing rate exceeds the prime interest rate on the date of the lease agreement, in which case the prime interest rate should be used. B. the incremental borrowing rate is less than two-thirds of the prime interest rate, in which case the prime interest rate should be used. C. the lessee knows the implicit rate of the lessor. D. the lessee's incremental borrowing rate is double the LIBOR rate.

C. the lessee knows the implicit rate of the lessor.

If a lease arrangement meets a sales-type lease, but payments by the lessee are determined as not probable, then A. the lessor records the lease as an operating lease. B. the lessor records the lease as a finance lease but makes a disclosure as to the improbability of payments. C. the lessor does not record a receivable and does not de-recognize the leased asset, but instead records any receipt of lease payments as a deposit liability. D. the lessor records the lease as a finance lease at the amount determined to be collected as probable.

C. the lessor does not record a receivable and does not derecognize the leased asset, but instead records any receipt of lease payments as a deposit liability.

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

C. the recognition of profit by the lessor.

With respect to the computations of costs of goods sold, sales revenue, and gross profit for the lessor in a sales-type lease, how are the amounts recorded for guaranteed residual value and unguaranteed residual value different or the same? -COGS -Sales Revenue -Gross Profit

COGS: different sales revenue: different gross profit: same

Which of the following activities is classified as an investing activity on the statement of cash flows? A. Cash received from the sale of goods and services. B. Cash paid to suppliers for inventory. C. Cash paid to lenders for interest. D. Cash received from the sale of property, plant, and equipment.

D. Cash received from the sale of property, plant, and equipment.

Which of the following lease arrangements would most likely be accounted for as an operating lease by the lessee? A. The lease agreement runs 16 years and the economic life of the lease property is 20 years. B. The present value of the minimum lease payments is $55,600 and the fair value of the leased property is $60,000. C. The lease agreement allows the lessee the right to purchase the leased asset for $1.00 when half of the asset's economic useful life has expired. D. The lessee may renew the two-year lease for an additional two years at the same rental.

D. The lessee may renew the two-year lease for an additional two years at the same rental.

Which party records revenue for leasing out the asset? a. government b. parent company c. lessee d. lessor

D. lessor

In a sale-leaseback transaction, the seller-lessee retains the right to substantially all of the remaining use of the equipment sold. The gain or loss should be recognized by the lessee when the lease is classified as a(n): Financing Operating

Financing: Yes Operating: No

(L.O. 1) The cash received from the sale of property, plant, and equipment at no gain or loss is classified as what type of activity on the statement of cash flows? Investing Financing Operating

Investing- Yes Financing- No Operating- No

Which plus or minus signs for lease prepayments and incentives correctly identifies the adjustments to be made to the lease liability balance to properly report the right-of-use asset by the lessee? Prepaid Lease Payments Lease Incentives Received Initial Direct Costs

Prepaid Lease Payments (+) Lease Incentives Received (-) Initial Direct Costs (+)

How is the accounting for leases for a lessor different for a sales-types lease compared to an operating lease? a. There is a difference in the timing of lease revenue recognized. b. There is a difference in the timing of cash payments received. c. There is a difference in the size of lease payments. d. There is a difference in the frequency of payments made.

a. There is a difference in the timing of lease revenue recognized.

What do the lease classification rules try to determine? a. Whether the lessee is effectively purchasing the leased asset b. Whether the lease was initiated by the lessee or the lessor. c. Whether the residual value is guaranteed by the lessor. d. Whether the lease will be recognized as a liability or an asset

a. Whether the lessee is effectively purchasing the leased asset

What does it mean to capitalize a lease? a. The unguaranteed residual value is not included in the lease liability for the lessee. b. The lease asset is recorded on the balance sheet. c. The leased asset and corresponding liability are not recorded on the balance sheet. d. Expenses are recognized when lease payments are made.

b. The lease asset is recorded on the balance sheet.

What is the new accounting guidance in regard to capitalization of leases? a. Capitalize finance leases, expense operating leases b. Capitalize operating leases, expense finance leases c. Capitalize only leases that are less than 12 months d. Capitalize finance and operating leases

d. Capitalize finance and operating leases

What is one impact of the change in accounting for leases from ASC 840 to ASC 842? a. The accounting for leases became more rules-based. b. The accounting for leases is now determined by the lessor. c. The accounting for leases is now recorded in the income statement. d. The accounting for leases has less off-balance-sheet leases.

d. The accounting for leases has less off-balance-sheet leases.

Which of the following is not a required lease disclosure for the lessee? a. Total lease cost b. Maturity analysis of finance and operating leases c. Terms and conditions to extend or terminate the lease d. The originator of short term leases

d. The originator of short term leases

If the underlying economics of the transaction is that the lease is actually a sale of the asset to the lessee, how should this lessee account for the lease?

finance lease

Which of the following does the lessee consider as part of the lease value in the present value test of lease payments? a. unguaranteed residual value b. guaranteed residual value c. income taxes d. shipping costs

guaranteed residual value

The amortization of bond premium on long-term debt should be presented in a statement of cash flows (using the indirect method for operating activities) as a(n): A. Addition to net income. B. Deduction from net income. C. Investing activity. D. Financing activity.

B. Deduction from net income.

The method used to compute net cash provided by operating activities that adjusts net income for items that affected reported net income but did not affect cash is known as the: A. Indirect method. B. Direct method. C. Adjustment method. D. Income statement method.

A. Indirect method.

Which of the following lease arrangements would most likely be accounted for as a finance lease by the lessee? A. The lessee rents the truck for $1,000 a month for 10 years and after 10 years has an option to continue renting the truck for an additional 10 years at $50 per month, and the estimated life of the truck is 15 years. B. At the end of the lease term, the lessor has another use for the asset that was specially created for the lessee. C. The present value of the minimum lease payments is $32,000 and the fair value of the lease property is $40,000. D. The lease agreement runs 5 years and the economic life of the lease property is 10 years.

A. The lessee rents the truck for $1,000 a month for 10 years and after 10 years has an option to continue renting the truck for an additional 10 years at $50 per month, and the estimated life of the truck is 15 years.

Which of the following is NOT one of the commonly discussed advantages of lease for the lessor? A. The lessor has the right of first priority to use the leased asset since the lessor is still the owner of the asset. B. It often provides profitable interest margins. C. It can provide a high residual value to the lessor upon return of the property at the end of the lease term. D. It often provides tax benefits to various parties in the lease.

A. The lessor has the right of first priority to use the leased asset since the lessor is still the owner of the asset.

An essential element of a lease conveyance is that the: A. lessor conveys less than his or her total interest in the property B .lessee provides a sinking fund equal to one year's lease payments C .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. D. term of the lease is substantially equal to the economic life of the leased property.

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

In general, financing activities as used in the statement of cash flows refer to: A. liability and owners' equity items and include (a) obtaining cash from creditors and repaying the amounts borrowed and (b) obtaining capital from owners and providing them with a return on, and a return of, their investment. B. transactions involving long-term assets and include (a) making and collecting loans and (b) acquiring and disposing of investments and productive long-lived assets. C. only debt transactions that result from long-term borrowings from financial institutions. D. the cash effect of transactions that enter into the determination of net income and, thus, help finance the operations of the business through the generation of cash.

A. liability and owners' equity items and include (a) obtaining cash from creditors and repaying the amounts borrowed and (b) obtaining capital from owners and providing them with a return on, and a return of, their investment.

The first step in the preparation of the statement of cash flow requires the use of information included in which comparative financial statements? A. Statements of Cash Flows. B. Balance Sheets. C. Income Statements. D. Statements of Retained Earnings.

B. Balance Sheets.

There are different views on the capitalization of leases. Which of the following has been adopted by the FASB? A. Capitalize firm leases where the penalty for nonperformance is substantial. B. Capitalize all long-term leases. C. Do not capitalize any leased assets. D. Capitalize leases that a similar to installment purchases.

B. Capitalize all long-term leases.

The basis recommended by the FASB for the statement of cash flows is"cash and cash equivalents." As described by GAAP, cash equivalents are: A. All current assets that have no realization problems associated with them. B. Short-term, highly liquid investments that are both readily convertible to known amounts of cash, and so near their maturity that they present insignificant risk of changes in interest rates. C. All cash and near cash items that will be turned into cash within one operating period or one year, whichever is shorter. D. All cash and investments in short-term securities that have a maturity of three months or less from the date of the financial statements.

B. Short-term, highly liquid investments that are both readily convertible to known amounts of cash, and so near their maturity that they present insignificant risk of changes in interest rates.

For the lessee, a finance lease differs from an operating lease because: A. The lessee still records a right-of-use asset and lease liability at commencement and still uses the effective interest method to calculate the lease expense. B. The lessee still records a right-of use asset and lease liability at commencement but records the same amount for lease expense each period over the lease term. C. The lessee does not record a right-of-use asset and lease liability at commencement but still uses the effective interest method to calculate the lease expense. D. The lessee does not record a right-of-use asset and lease liability at commencement and records the same amount for lease expense each period over the lease term.

B. The lessee still records a right-of use asset and lease liability at commencement but records the same amount for lease expense each period over the lease term. (OPERATING)

In a statement of cash flows, the cash flows from investing activities section should report: A. the issuance of common stock in exchange for legal services. B. a stock split. C. the assignment of accounts receivable. D. a payment of dividends.

C*** the assignment of accounts receivable. A. the issuance of common stock in exchange for legal services. (noncash) B. a stock split. (non cash) D. a payment of dividends. (financing)

Which of the following is not one of the benefits investors and creditors can expect as a result of the presentation of the statement of cash flows? A. Assess the enterprise's ability to meet its obligations, its ability to pay dividends, and its need for external financing. B. Assess the effects on an enterprise's financial position of both its cash and noncash investing and financing transactions during a period. C. Assess the enterprise's ability to expand its operating facilities through the issuance of long-term debt. D. Assess the reasons for differences between net income and associated cash receipts and payments.

C. Assess the enterprise's ability to expand its operating facilities through the issuance of long-term debt.

Which of the following is NOT one of the commonly discussed advantages of leasing for the lessee? A. Leasing permits 100% financing at fixed rates. B. Leasing permits changes in equipment more easily thus reducing the risk of obsolescence. C. Leasing improves financial ratios by increasing assets without a corresponding increase in debt. D. Lease agreements may contain less restrictive provisions than other debt agreements.

C. Leasing improves financial ratios by increasing assets without a corresponding increase in debt.

How should significant noncash transactions (purchase of equipment in exchange for common stock) be reported in the statement of cash flows according to GAAP? A. They should be incorporated in the statement of cash flows in a section labeled, "Significant Noncash Transactions." B. Such transactions should be incorporated in the section (operating, financing, or investing) that is most representative of the major component of the transaction. C. These noncash transactions are not to be incorporated in the statement of cash flows. They may be summarized in a separate schedule at the bottom of the statement or appear in a separate supplementary schedule to the financials. D. They should be handled in a manner consistent with the transactions that affect cash flows.

C. These noncash transactions are not to be incorporated in the statement of cash flows. They may be summarized in a separate schedule at the bottom of the statement or appear in a separate supplementary schedule to the financials.

Of the following questions, which one would not be answered by the statement of cash flows? A. Where did the cash come from during the period? B. What was the cash used for during the period? C. Were all the cash expenditures of benefit to the company during the period? D. What was the change in the cash balance during the period?

C. Were all the cash expenditures of benefit to the company during the period?

To arrive at net cash provided by operating activities, it is necessary to report revenues and expenses on a cash basis. This is done by: A. re-recording all income statement transactions that directly affect cash in a separate cash flow journal. B. estimating the percentage of income statement transactions that were originally reported on a cash basis and projecting this amount to the entire array of income statement transactions. C. eliminating the effects of income statement transactions that did not result in a corresponding increase or decrease in cash. D. eliminating all transactions that have no current or future effect on cash, such as depreciation, from the net income computation.

C. eliminating the effects of income statement transactions that did not result in a corresponding increase or decrease in cash.

If the leased asset is going to be worthless after the lease expires because it only has value to the lessee, how should the lease be accounted for? a. time value lease b. operating lease c. finance lease d. discount lease

c. finance lease