ACCT 312 Chapter 21A and 24

Wilson company has a machine with a cost of $250,000 which also is its fair market value on the date the machine is leased to Berger Company. The lease is for 6 years and the machine is estimated to have a residual value of zero. If the lessor's implicit rate is 6%, the six beginning-of-the-year lease payments would be

47,962.92

A lease is a contractual agreement conveying ownership of certain property from one part to another party

False

A particular segment is not significiant enough to disclose unless its revenuees excceed 15% of the revenues earned by the other segments being reported

False

According to GAAP, when a company issues a quarterly income statement, taht statement should represent approximately one-fourth of the total net income for the year in which the quarter exists

False

Accounting policies of a given entity are normally teh specific accounting principles recommended by the indistry in which the entity operates

False

Financial forecasts present, to the best of the responsible party's knowledge, given one or more hypothetical assumptions, an entity's expected financial position, results of operations, and cash flows

False

If it is probable that the expected residual value is less than the guaranteed residual value, the lessee should not include the guaranteed residual value in the computation of the leased liability

False

Initial direct costs incurred by the lessee are included in the cost of the lease liability but are not recorded as part of the right-of-use asset

False

Interim financial reports prepared by a busienss enterprise normally include a complete set of financial statements for a period of less than one year

False

Lease prepayments made by the lessee decrease the right-of-use asset

False

Normally, the information disclosed in notes to financial statemenets is less relevant to an understanding of the financial statements than the information presented in the body of teh financial statements

False

Notes related to the claims of equity holders are quite rare, as this kind of info is presented in the equity section of the balance sheet directly opposite the class of security to which the info applies

False

Regardless of whether a lease is short-term or long-term, a lessee has to record a right-of-use asset and a lease liability

False

Segment information that is required to be reported must be prepared on the same accounting basis that used in the enterprise's consolidated financial statements

False

The FASB uses 75% as the guidline to determine if the present value of the lease payments is reasonably close to the fair value of the asset under the present value test

False

The SEC has a safe harbor rule which allows companies to report fraudulent information as long as it was done in good faith.

False

Under an operating lease, the lessor generally records a Lease Receivable and eliminates the leased asset

False

When a lease is classified as an operating lease, the lessee continues to report a separate interest expense

False

When an auditor examines the financial statements of a business enterprise for the purpose of expressing an opinion thereon, he or she attempts to determine whether the statements are an accurate representation of the entity's financial position and results of operations.

False

When determining the present value test, the incremental borrowing rate is generally a more realistic rate to use in determining the amount to report as the asset and related liability

False

When valuing the lease liability the lessee should estimate increases or decrerases to future lease payments based on variable payments that change based on increases or decreases in an index or rate

False

Which of the following questions would an analyst be least likely to find in the notes

How How many separate bank accounts the company maintains

Accounting policy disclosure

Information related to the accounting methods used in the prepartiion of year-end fianncial statements

Note information

Information that is an integral part of the financial statements that serves as a means of amplofying or explaining the items presented in the main body fo the statements

Which of the following should be disclosed in a Summary of Significant Acct Policies

Inventory method followed

Which of the following is NOT one of the commonly discussed advantages of leasing for the lessee

Leasing imporves financial ratios by increasing assets without a corresponding increase in debt

The managment discussion and analysis section should focus attention on

Liquidity, Capital Resources, and Results of Operations

If the financial statements examined by an auditor lead the auditor to issue an opinion that contains an exception that is not of sufficient magnittude to invalidate the statement as a whole, the opinion is said to be

Qualified

In presenting segment info, which of the following items must be reconciled to the entity's consolidated financial statements?

Revenues, Operating Profit, and Identifiable Assets

An operating segment is regarded as significant enough to warrant disclosure if it satisfies one or more quantitative tests that deal with segment revenues, income, or assets. In addition to these quantitative tests the FASB believes entities should not report too many segments so as to overwhelm users with detailed information that may not be useful. The FASB also requires that:

Segemnt results equal or exceed 75% of the combined sales to unaffiliated customers for the entire enterprise

In computing the PV of the payments under the PV test, the lessee must use a discount rate. Normally use of the lessee's incremental borrowing rate is appropraite unless:

The lessee knows the implicit rate of the lessor

Which of the following lease arrangements would most likely be accounted for as an operating lease by the lessee?

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

Which of the following lease arrangements would most likely be accounted for as a finance lease by the lessee?

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, the estimated life of the truck is 15 years

If a lease arragnement meets a sales-type lease, but payments by the lessee are determined as not probable then,

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

Which of the following is NOT one of the commonly discussed advantages of lease for the lessor

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

For the lessee, a finance lease differs from an operating lease because

The lesssee still records a right-of-use asset and lease liability at commencement but records the same amount for lease epense each period over the lease term

If a business entity entered into certain related party transactions it would be required to disclose all of the following except

The nature of any future transactions planned

XBRL

a computer language adapted from the code of the internet used to tag accounting data

Management discussion and analysis

a part of an entity's annual report that covers three aspects of the business - liquidity, capital resources, and results of operations

Interim financial reporting

a report used to provide info on the profitability of a company for less than one-year period

Auditor's report

a report useful to investors that indicates that the financial statements are fairly presented

An essential element of a lease conveyance is that the

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

An adverse opinion is an indication that the fianncial statements do not present fairly the fianncial position

true

The disclosure of acct policies is important to financial statement readers in determining

whether acct policies are consistently applied from year to year

Management is required to highlight favorable or unfavorable trends and to identify significant events and uncertainties that affect the enterprise's liquidity, capital resources, and results of operations.

True

Notes are an integral part of the financial statements of a business enterprise

True

The FASB has adoptedthe approach that all long-term leases should be capitalized

True

The lease classification tests for the lessor are identical to the tests used by the lessee to determine classification of a lease as a financing or operating lease

True

The summary of significant accoutning policies is presented either as the first note to the financial statements or as a separate section preceding the notes to the financial statements

True

When gain or loss contingencies exist, an enterprise will generally disclose them in the notes to the balance sheet

True

When the lease term is a major part of the remaining economic life of the leased asset, companies should use the finance method in accounting for the lease transaction

True

In the first week of June 2017, Travis Company incurred advertising expenses at a cost of $300,000. These advertising costs will benefit operations for the second half of the calendar year. How should these expenses be reflected in Travis's quarterly income statements?

3/31/17: 0$ 6/30/17: 0$ 9/30/17: 150,000 12/31/17: $150,000

Which of the following best characterizes the difference between a financial forecast and a financial projection?

A forecast attempts to provide information on what is expected to happen whereas a projection may provide information on what is not necessarily expected to happen

There are different views on the capitalization of leases. Which of the following has been adopted by the FASB?

Capitalize all long-term leases

The standard unqualified opinion is also known as

Clean opinion

Fradulent financial accounting

intentional or reckless conduct, whether act or omission, that rsults in materially misleading fianncial statements

The full disclosure principle, as adopted by the acct profession, is best described as

Disclosure of any financial facts significant enough to influence the judgement of an informed reader

The publication of profit projections by a business enterprise is

Encouraged by the SEC, which has issued a safe harbor rule to protect entities that present this kind of info

Which of the following describes unintentional mistakes?

Errors: Yes Irregularities: No

Opportunities for fradulent financial reporting are present in circumstances when the fraud is easy to commit and when detection is difficult. An opportunity for fraud would lease likely arise from the following situation

Strong internal controls

The accounting profession indicates that

The same accounting principles used for the annual report should be employed for interim reports

A bargain purchase option affects the accounting for leases in the same way as a guarenteed residual value with a probable amount to be owned

True

A careful reading of thenotes to the financial statmenets provides information as to off balance sheet commitments, future financing needs, and the quality of a company's earnings

True

A lessee does not include an unguaranteed residual value in the compuation of the lease liability, whether it is a finance lease or an operating lease

True

An advantage of leasing for the lessee is protection against obsolescense

True

An auditor is a professional who conducts an indepedent examination of the acct data presented by the business enterprise for the purpose of expressing an opinion thereon

True

Executory costs included in the fixed payments required by the lessor should be included in lease payments for purposes of measuring the lease liability

True

For classification purposes, a lessee includes the full amount of a residual value guarantee at the end of the lease term in the present value test

True

For leases classified as operating, the lessee records a right-of-use asset and lease liability at commencement of the lease, similar to the finance lease approach

True

For purposes of computing earnings per share and making the disclosures required by GAAP, each interim period should stand alone; that is, all applicable tests shouldbe made for that single period

True

Generally, expenses subject to year-end adjustement such as bad debts and executive bonuses, are estimated and allocated to interim periods

True

If a lease contains a bargain purchase option, the lessee shall classify and account for the arrangement as a finance lease

True

In an operating lease, the lessee recognizes interest expense on the lease liability over the life of the lease using the effective-interest method and records the amortization expense on the right-of-use asset generally on a straight-line basis

True

Initial direct costs are incremental costs of a lease that would not have been incurred had the lease been executed

True

The area directly affected by FASB rules includes MD&A

false

Financial projection

financial info based on a company's assumptions reflecting conditions it expects would exdist in the future, given one or more hypothetical asumptions

Fianncial forecae

info based on a company's assumption reflecting conditions if it expects to exist in the future

Reporting of segemnt info

info related to revenue and profit brakdowns by divisional lines