Accy 304 - Ch 21 Practice Q's
In computing the present value of the minimum lease payments, the lessee should a. use its incremental borrowing rate in all cases. b. 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. c. 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. d. none of these.
C. 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
Executory costs: (a) are recorded as a prepaid asset by the lessor under a capital lease. (b) are always included by the lessee in the computation of the present value of the minimum lease payments. (c) include sales commissions, legal fees, and credit investigation charges. (d) should normally be borne by the party that is, in substance, the owner of the asset.
D
Which of the following items would require a lessor to classify a lease as an operating lease? (a) The lease contains a bargain purchase option. (b) Ownership of the property is transferred to the lessee during the lease term. (c) The lease term is 80% of the estimated economic life of the leased property. (d) The collectibility of the minimum lease payments is highly uncertain.
D
Carey sold its headquarters building at a gain, and simultaneously leased back the building. The lease was reported as a capital lease. At the time of the sale, the gain should be reported as a. operating income. b. an extraordinary item, net of income tax. c. a separate component of stockholders' equity. d. a deferred gain.
D. a deferred gain
Which of the following statements is correct? a. In a direct-financing lease, initial direct costs are added to the net investment in the lease. b. In a sales-type lease, initial direct costs are expensed in the year of incurrence. c. For operating leases, initial direct costs are deferred and allocated over the lease term. d. All of these.
D. all of these
Which of the following would not be included in the Lease Receivable account? a. Guaranteed residual value b. Unguaranteed residual value c. A bargain purchase option d. All would be included
D. all would be included
All of the following are advantages of leasing except: a. leasing permits the write-off of the full cost of the assets b. leasing may permit more rapid changes in equipment. c. leasing may have favorable tax advantages. d. interest rates for leasing are always lower.
D. interest rates for leasing are always lower
A capitalized leased asset is always depreciated over the term of the lease by the lessee.
False
A disadvantage to the lessee of a leasing is that the leased item may become obsolete before the end of the lease period.
False
A lease that contains a purchase option must be capitalized by the lessee.
False
A lease that transfers the benefits and risks of ownership should be classified as an operating lease.
False
A lessee may have three types of lease: sales-type, direct financing, or operating.
False
A lessee records interest expense in both a capital lease and an operating lease.
False
According to GAAP, a lease where the present value of the minimum lease payments is substantially all of the fair value of the asset must be capitalized.
False
Both a guaranteed and an unguaranteed residual value affect the lessee's computation of amounts capitalized as a leased asset.
False
Executory costs represent payment on or reduction of the lease obligation.
False
GAAP bases lease accounting on conformity with the legal form of leases.
False
If a capital lease contains a bargain purchase option, the lessee depreciates the leased property over the term of the lease.
False
In a sale-leaseback transaction, if the lease includes a bargain purchase option, the seller-lessee accounts for the transaction as a sale and the lease as a capital lease, and amortizes the profit from the sale over the lease term.
False
In a sale-leaseback transaction, if the lease term is 75% or more of the economic life of the asset, with no bargain purchase option or title transfer, the seller-lessee accounts for the transaction as a sale and the lease as a capital lease, and amortizes the profit from the sale over the economic life of the asset.
False
In computing the annual lease payments, the lessor deducts only a guaranteed residual value from the fair market value of a leased asset.
False
Initial direct costs are always capitalized by the lessor and matched to lease revenue over the term of the lease.
False
Lessors classify and account for all leases that don't qualify as sales-type leases as operating leases.
False
Minimum lease payments include both a guaranteed and an unguaranteed residual value.
False
Minimum rental payments are the same as minimum lease payments.
False
T/F A lease where the present value of the minimum lease payments exceed 80% of the fair value of the asset must be capitalized.
False
T/F Executory costs do represent payment on or reduction of the lease obligation.
False
T/F For a capital lease with a bargain purchase option, the lessee should depreciate the capitalized asset based on the lease term as opposed to the economic life of the asset.
False
T/F If a lease contains a dealer's profit, it is classified as a direct financing lease for the lessor.
False
T/F Minimum lease payments do not include the guaranteed residual value.
False
T/F The present value of the unguaranteed residual value is included in the calculation of the minium lease payments for the lessee.
False
T/F Under the operating lease method, the lessee will depreciate the asset over the lease term if less than the economic life of the asset.
False
The FASB agrees with the capitalization approach and requires companies to capitalize all long-term leases.
False
The distinction between a direct-financing lease and a sales-type lease is the presence or absence of a transfer of title.
False
The gross profit amount in a sales-type lease is greater when a guaranteed residual value exists.
False
The lessor will recover a greater net investment if the residual value is guaranteed instead of unguaranteed.
False
Under IFRS, the capitalization criteria include that the present value of the minimum lease payments is 90% or more of the fair value of the asset.
False
Under a sales-type lease, the lessor records depreciation on the leased property over the term of the lease.
False
Under an annuity due, payments must be made at the end of each period.
False
Under the operating method, the lessor records each rental receipt as part interest revenue and part rental revenue.
False
When a bargain purchase option exists, the lessee initially records the leased property at the present value of the minimum lease payments, minus the present value of the bargain purchase option.
False
___ are the costs incurred by the lessor that are directly associated with negotiating and consummating a leasing transaction.
Initial Direct Costs
Execuatory costs include:
Maintenance, property taxes, insurance
What are the methods of accounting for a lease by the lessee?
Operating and Capital lease methods.
What are the methods of accounting for a lease by the lessor?
Operating, direct financing and sales-type leases.
How are Initial Direct Costs treated under each an Operating lease, Sales-Type lease and Direct Financing lease?
Operating: deferred and amortized over the life of the lease in proportion to rental income. Sales-Type: expensed in the period that profit on the sale is recognized. Direct Financing: added to the net investment in the lease and amortized over the life of the lease.
Minimum lease payments may include:
Penalty for failure to renew; bargain purchase option; guaranteed residual value
A benefit of leasing to the lessor is the return of the leased property at the end of the lease term.
True
According to IFRS, a lease where the present value of the minimum lease payments is substantially all of the fair value of the asset must be capitalized.
True
Although guaranteed and unguaranteed residual values are treated differently under sales-type lease accounting, the same gross profit results.
True
Companies must periodically review the estimated unguaranteed residual value in a sales-type lease.
True
Direct-financing leases are in substance the financing of an asset purchase by the lessee.
True
Executory costs are ownership-type costs such as insurance, maintenance, and taxes.
True
Executory costs should be excluded by the lessee in computing the present value of the minimum lease payments.
True
From the lessee's viewpoint, an unguaranteed residual value is the same as no residual value in terms of computing the minimum lease payments.
True
In a direct financing lease, there is no dealer's profit or loss.
True
Leasing equipment reduces the risk of obsolescence to the lessee, and passes the risk of residual value to the lessor.
True
T/F A lease that is cancelable cannot be recorded as a capital lease.
True
T/F A lease that transfers the benefits and risks of ownership should be capitalized.
True
T/F Financial statement or note disclosure is required for all operating leases that have a non-cancelable term in excess of one year.
True
The FASB requires lessees and lessors to disclose certain information about leases in their financial statements or in the notes.
True
The effective interest method produces a constant rate of interest on the balance of the obligation outstanding at the beginning of each period.
True
The lessor records sales revenue and the cost of goods sold in the initial journal entries for a sales-type lease.
True
The lessor's journal entries for the collection of rent and the recognition of earned interest are the same for sales-type and direct financing leases.
True
The primary difference between a direct-financing lease and a sales-type lease is the manufacturer's or dealer's gross profit.
True
To compute the present value of the minimum lease payments, the lessee uses the lower of the lessee's incremental borrowing rate, or the lessor's interest rate implicit in the lease, if known.
True
When a lessee guarantees the residual value of an asset under capital lease, the lessee records the asset at the sum of the present values of the minimum lease payments, which includes the guaranteed residual value.
True
When the estimated unguaranteed residual value of a leased asset declines, the lessor recognizes a loss.
True
When the lessee agrees to make up any deficiency below a stated amount that the lessor realizes in residual value, that stated amount is the guaranteed residual value.
True
With a direct financing lease, the lessor records the difference between the gross receivable and the cost or carrying value of the asset in a contra account as unearned revenue.
True
In computing depreciation of a leased asset, the lessee should subtract a. a guaranteed residual value and depreciate over the term of the lease b. an unguaranteed residual value and depreciate over the term of the lease c. a guaranteed residual value and depreciate over the life of the asset d. an unguaranteed residual value and depreciate over the life of the asset
a. a guaranteed residual value and depreciate over the term of the lease
Unearned interest revenue is a. amortized to revenue over the lease term by using the effective interest method b. recorded in both capital and operating leases c. the difference between the net investment and the fair value of the property d. the difference between the fair market value of the property and the cost of the property
a. amortized to revenue over the lease term by using the effective interest method
A lessee with a capital lease containing a bargain purchase option should depreciate the leased asset over the a. asset's remaining economic life b. term of the lease c. life of the asset or the term of the lease, whichever is shorter d. life of the asset or the term of the lease, whichever is longer
a. asset's remaining economic life
All of the following are advantages of leasing except a. elimination of the risk of obsolescence b. 100% financing at fixed rates c. less costly financing d. off-balance sheet financing
a. elimination of the risk of obsolescence
The lessee may not capitalize property for more than its: a. fair value b. book value c. historical cost d. liquidation value
a. fair value
Which of the following are not includable in executory costs? a. minimum rental payments b. taxes c. insurance d. maintenance.
a. minimum rental payments
The methods of accounting for a lease by the lessee are a. operating and capital lease methods b. operating, sales and capital lease method c. operating and leverage lease methods d. none of these
a. operating and capital lease methods
When depreciable asset is leased under an operating lease, the lessor: a. records depreciation in the normal manner b. defers depreciation until the lease expires c. must use activity based depreciation d. never recognized depreciation
a. records depreciation in the normal manner
In a lease that is appropriately recorded as a direct financing lease by the lessor, unearned income a. should be amortized over the period of the lease using the interest method b. should be amortized over the period of the lease using the straight line method c. does not arise d. should be recognized at the lease's expiration
a. should be amortized over the period of the lease using the interest method
In computing the present value of the minium lease payments, the lessee should a. use its incremental borrowing rate in all cases b. 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 c. 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 d. none of these
c. 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
If a lease does not contain a bargain purchase option, but the lease term is equal to 90% of the estimated economic life of the leased property, how should this lease be classified by the lessee?
capital lease
If a lease does not transfer ownership of the property to the lessee by the end of the lease term, but the lease term is equal to 75% of the estimated economic life of the leased property, how should this lease be classified by the lessee?
capital lease
Using the sales-type method of accounting for a lessor's lease, the Cost-Of-Goods-Sold is calculated as:
cost of the asset - present value of the unguaranteed residual (note: cost of the asset is based on book value, not fair market value)
All of the following are difference that occur if a lease is classified as a capital lease instead of an operating lease except: a. an increase in the amount of reported debt b. an increase in the amount of total assets c. a lower income early in the life of the lease d. a decrease in the amount of total expenses
d. a decrease in the amount of total expenses
Lease payments receivable includes all of the following except a. a penalty for failure to renew b. a bargain purchase option c. unguaranteed residual value d. all of the options are included
d. all of the options are included
Executory costs include a. maintenance b. property taxes c. insurance d. all of these
d. all of these
Major reasons why a company may become involved in leasing to other companies is (are) a. interest revenue b. high residual values c. tax incentives d. all of these
d. all of these
Which of the following is an advantage of leasing? a. off balance sheet financing b. less costly financing c. 100% financing at fixed rates d. all of these
d. all of these
Minimum lease payments may include a a. penalty for failure to renew b. bargain purchase option c. guaranteed residual value d. any of these
d. any of these
Which of the following is included in the minimum lease payment? a. maintenance costs b. insurance c. property taxes d. bargain purchase option
d. bargain purchase option
The FASB agrees with which of the following viewpoints regarding capitalization of leases? a. capitalize firm leases where the penalty for nonperformance is substantial b. do not capitalize any leased assets c. capitalize all long term leases d. capitalize those leases similar to installment purchases
d. capitalize those leases similar to installment purchases
When a company sells property and then leases it back, any gain on the sale should usually be a. recognized in the current year b. recognized as a prior period adjustment c. recognized at the end of the lease d. deferred and recognized as income over the term of the lease
d. deferred and recognized as income over the term of the lease
If the residual value of a lease asset is guaranteed by a third party a. it is treated by the lessee as no residual value b. the 3rd party is also liable for any lease payments not paid by the lessee c. the net investment to be recovered by the lessor is reduced d. it is treated by the lessee as an additional payment and by the lessor as realized at the end of the lease term
d. it is treated by the lessee as an additional payment and by the lessor as realized at the end of the lease term
Which of the following is not a benefit to the lessor? a. high residual value b. interest revenue c. tax incentives d. off-balance sheet financing
d. off-balance sheet financing
Any lease that does not qualify as a direct financing lease or a sales-type lease is classified and accounted for by the lessor as a(n): a. capital lease b. residual lease c. temporary lease d. operating lease
d. operating lease
In computing the present value of the minimum lease payments, the lessee would use ____ to calculate the interest rate?
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,
costs incurred in originating a lease arrangement that are paid to third parties.
incremental direct costs
The two types of Initial Direct Costs are:
incremental direct costs and internal direct costs
costs directly related to specified activities performed by the lessor on a given lease.
internal direct costs
If the residual value of a leased asset is guaranteed by a third party
it is treated by the lessee as no residual value
The distinction, for the lessor, between a direct financing lease and a sales-type lease is the presence or absence of
manufacturer's or dealer's profit
If a lease term is 50% of the estimated economic life of the asset, the lease does not transfer ownership of the property to the lessee by the end of the term and no bargain purchase option exists, how should this lease be classified by the lessee?
operating lease
When a depreciable asset is leased under an operating lease, the lessor
records depreciation in the normal manner
In a lease that is appropriately recorded as a direct financing lease by the lessor, unearned income:
should be amortized over the period of the lease using the effective interest method.
For a capital lease, the lessee records an asset and a liability at the lower of:
the present value of the minimum lease payment, or the fair market value of the leased asset at the inception of the lease.
The total charges to operations over the lease term are
the same for a capital lease as an operating lease
Recognition of a gain or loss on the sale-leaseback transaction by the seller-lessee depends on whether or not the seller-less will continue to use the asset after the sale or gives up the right to use the asset.
true
To be classified as a capital lease by the lessee, the lease term needs to be at least __% of the estimated economic life of the equipment.
75%
If the PV of the minimum lease payments equals or exceeds __% of the fair value of the asset, the lease should be capitalized by the lessee. What is this test called?
90%; known as the 90% Test or Recovery of Investment Test
All of the following statements about lease accounting under IFRS are true except: a. IFRS is more general in its lease accounting provisions than is US GAAP b. IFRS requires a year by year breakout of payments related to leasing arrangements c. the IFRS leasing standard is IAS 17, first issued in 1982 d. the IFRS leasing standard, IAS 17, is the subject of only three interpretations
B. IFRS requires a year by year breakout of payments related to leasing arrangements
For a sales-type lease, a. the sales price includes the present value of the unguaranteed residual value. b. the present value of the guaranteed residual value is deducted to determine the cost of goods sold. c. the gross profit will be the same whether the residual value is guaranteed or unguaranteed. d. none of these.
C. the gross profit will be the same whether the residual value is guaranteed or unguaranteed
Which of the following is a correct statement of one of the capitalization criteria? a. The lease transfers ownership of the property to the lessor. b. The lease contains a purchase option. c. The lease term is equal to or more than 75% of the estimated economic life of the leased property. d. The minimum lease payments (excluding executory costs) equal or exceed 90% of the fair value of the leased property.
C. the lease term is equal to or more than 75% of the estimated economic life of the leased property
Based solely upon the following sets of circumstances indicated below, which set gives rise to a sales-type or direct-financing lease of a lessor? Transfers Ownership By End of Lease? Contains Bargain Purchase Option? Collectibility of Lease Payments Assured? Any Important Uncertainties? a. No Yes Yes No b. Yes No No No c. Yes No No Yes d. No Yes Yes Yes
A. No Yes Yes No
When a lease contains a bargain purchase option, (a) the leased asset is depreciated by the lessee over the asset's estimated economic life. (b) the leased asset is depreciated by the lessor over the lease term. (c) the lease is always classified as an operating lease by the lessee. (d) the lease is always classified as a sales type lease by the lessor.
A
Which of the following statements about direct financing leases for lessors is not true? (a) Cost of goods sold and sales revenue are recorded at the inception of a direct financing lease. (b) A direct financing lease does not result in a dealer's profit. (c) Interest revenue under a direct financing lease is recognized by the effective interest method. (d) The Minimum Lease Payments Receivable account is recorded at the sum of the undiscounted minimum lease payments (net of executory costs paid by the lessor)
A
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
A lessee had a ten-year capital lease requiring equal annual payments. The reduction of the lease liability in year 2 should equal a. the current liability shown for the lease at the end of year 1. b. the current liability shown for the lease at the end of year 2. c. the reduction of the lease liability in year 1. d. one-tenth of the original lease liability.
A. the current liability shown for the lease at the end of year 1
GAAP: (a) emphasizes compliance with the legal provisions of leases. (b) reasons that a lease that transfers the risks and benefits of ownership represents, in substance, a purchase and sale. (c) attempts to provide separate classification criteria for lessees and lessors. (d) requires a lessee to include an asset under an operating lease on the balance sheet as an asset and a liability.
B
Which of the following statements concerning initial direct costs incurred by a lessor is not true? (a) Material initial direct costs of an operating lease are matched by the lessor to rental revenue over the life of the lease. (b) Initial direct costs of all types of leases are recorded as a prepaid asset. (c) Initial direct costs of a direct financing lease are recognized as a reduction in the interest rate implicit in the lease. (d) Initial direct costs of a sales-type lease are charged against income of the period.
B
If a leased asset is not recorded as an asset and liability by the lessee, (a) the current ratio and rate of return are generally lowered. (b) comparability between companies is improved. (c) the borrowing power of the lessee may be increased. (d) financial ratios are generally unaffected as compared to recording the asset and liabilities.
C
Which of the following items would require a lessee to classify a lease of equipment as a capital lease? (a) There are no important uncertainties about unreimbursable costs to be incurred by the lessor. (b) The lease does not contain a bargain purchase option. (c) The lease term is 80% of the estimated economic life of the leased property. (d) The present value of the minimum lease payments is 85% of the fair value of the leased property.
C
Lease A does not contain a bargain purchase option, but the lease term is equal to 90 percent of the estimated economic life of the leased property. Lease B does not transfer ownership of the property to the lessee by the end of the lease term, but the lease term is equal to 75 percent of the estimated economic life of the leased property. How should the lessee classify these leases? Lease A Lease B a. Operating lease Capital lease b. Operating lease Operating lease c. Capital lease Capital lease d. Capital lease Operating lease
C. Capital Lease Capital Lease
While only certain leases are currently accounted for as a sale or purchase, there is theoretic justification for considering all leases to be sales or purchases. The principal reason that supports this idea is that a. all leases are generally for the economic life of the property and the residual value of the property at the end of the lease is minimal. b. at the end of the lease the property usually can be purchased by the lessee. c. a lease reflects the purchase or sale of a quantifiable right to the use of property. d. during the life of the lease the lessee can effectively treat the property as if it were owned by the lessee.
C. a lease reflects the purchase or sale of a quantifiable right to the use of property
In a lease that is recorded as a sales-type lease by the lessor, interest revenue a. should be recognized in full as revenue at the lease's inception. b. should be recognized over the period of the lease using the straight-line method. c. should be recognized over the period of the lease using the effective interest method. d. does not arise.
C. should be recognized over the period of the lease using the effective interest method
In the earlier years of a lease, from the lessee's perspective, the use of the a. capital method will enable the lessee to report higher income, compared to the operating method b. capital method will cause debt to increase, compared to the operating method c. operating method will cause income to decrease, compared to the capital method d. operating method will cause debt to increase, compared to the capital method
b. capital method will cause debt to increase, compared to the operating method
In computing lease payments, the amount to be recovered by the lessor is the a. cost of the leased asset less the present value of the asset's residual value b. fair market value of the leased asset less the present value of the asset's residual value c. cost of the leased asset less the asset's residual value d. fair market value of the leased asset less the asset's residual value
b. fair market value of the leased asset less the present value of the asset's residual value
The lessee computes the present value of the minimum lease payments using the lessee's: a. effective interest rate b. incremental borrowing rate c. minimum discount rate d. stated contract rate
b. incremental borrowing rate
Which of the following best describes current practice in accounting for leases? a. leases are not capitalized b. leases similar to installment purchases are capitalized c. all long-term leases are capitalized d. all leases are capitalized
b. leases similar to installment purchases are capitalized
Which of the following is not one of the classifications for leases from the lessor's viewpoint? a. operating b. off-balance sheet c. direct financing d. sales type
b. off-balance sheet
The computation of the lessee's capitalized amount is the sum of the a. annual rental payments and the present value of the guaranteed residual value b. present value of the annual rental payments and the present value of the guaranteed residual value c. annual rental payments and the guaranteed residual value d. present value of the annual rental payments and the undiscounted guaranteed residual value
b. present value of the annual rental payments and the present value of the guaranteed residual value
The amount to be recorded as the cost of the asset under capital lease is equal to the a. present value of the minimum lease payments b. present value of the minimum lease payments or the fair value of the asset, whichever is lower c. present value of the minimum lease payments plus the present value of any unguaranteed residual value d. carrying value of the asset on the lessor's books
b. present value of the minimum lease payments or the fair value of the asset, whichever is lower
A lease that involves a manufacturer's or dealer's profit is a(n) a. capital lease b. sales-type lease c. operating lease d. direct financing lease
b. sales-type lease
What impact does a bargain purchase option have on the present value of the minimum lease payments computed by the lessee? a. no impact as the option does not enter into the transaction until the end of the lease term b. the lessee must increase the present value of the minimum lease payments by the present value of the option price c. the lessee must decrease the present value of the minimum lease payments by the present value of the option price d. the minimum lease payments would be increased by the present value of the option price if, at the time of the lease agreement, it appeared certain that the lessee would exercise the option at the end of the lease and purchase the asset at the option price
b. the lessee must increase the present value of the minimum lease payments by the present value of the option price
A lessor with a sales type lease involving an unguaranteed residual value available to the lessor at the end of the lease term will report sales revenue in the period of inception of the lease at which of the following amounts? a. the minimum lease payments plus the unguaranteed residual value b. the present value of the minimum lease payments c. the cost of the asset to the lessor, less the present value of any unguaranteed residual value d. the present value of the minimum lease payments plus the present value of the unguaranteed residual value
b. the present value of the minimum lease payments
All of the following are disclosures required of the lessor except a. future minimum lease payments to be received for each of the 5 succeeding years b. total contingent rentals included in income for each period for which an income statement is presented c. all of the options are required disclosures d. the components of the net investment in sales-type and direct financing leases as of each balance sheet date.
c. all of the options are required disclosures
The lease liability account should be disclosed as a. all current liabilities b. all noncurrent liabilities c. current portions in current liabilities and the remainder in noncurrent liabilities d. deferred credits
c. current portions in current liabilities and the remainder in noncurrent liabilities
Minimum lease payments include all of the following except a. the minimum rental payments b. a bargain purchase option c. executory costs d. a guaranteed residual value
c. executory costs
The lessor includes the leased asset's residual value in the amount to be recovered through lease payments if the residual value is a. less than the purchase option b. guaranteed c. guaranteed or unguaranteed d. unguaranteed
c. guaranteed or unguaranteed
The lessee would classify a lease as a capital lease if the a. lease contains a purchase option b. lease transfers ownership of the asset to the lessor c. lease term is equal to 75% or more of the economic life of the leased asset d. minimum lease payments equal or exceed 90% of the fair value of the leased asset.
c. lease term is equal to 75% or more of the economic life of the leased asset
The lessee records a capital lease as an asset and a liability at the a. total amount of the minimum lease payments b. fair market value of the leased asset at the lease inception c. lower of the present value of the minimum lease payments or the fair market value of the leased asset d. present value of the minimum lease payments
c. lower of the present value of the minimum lease payments or the fair market value of the leased asset
The distinction for the lessor between a direct financing lease or a sale-type lease is the presence or absence of: a. executory costs b. minimum lease payments c. manufacturer or dealer's profit d. guaranteed residual value
c. manufacturer or dealer's profit
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 the depreciation recorded each year by the lessor c. recognition of the manufacturer's or dealer's profit at the inception of the lease d. allocation of initial direct costs by the lessor to periods benefited by the lease arrangements
c. recognition of the manufacturer's or dealer's profit at the inception of the lease
Which one of the following amounts would differ in a sales-type lease with an unguaranteed residual value instead of a guaranteed residual value? a. lease receivable b. gross profit c. sales price of the asset d. none of the above
c. sales price of the asset
The lessor expenses initial direct costs in the year of incurrence in a(n) a. direct financing lease b. operating lease c. sales-type lease d. direct financing lease and sales-type lease
c. sales-type lease
Which of the following is not a criterion for a lease to be recorded as a capital lease? a. there is transfer of ownership. b. there is a bargain purchase option c. the lease is cancelable d. the lease term is at lease 75% of the asset's useful life
c. the lease is cancelable
In order to properly record a direct financing lease, the lessor needs to know how to calculate the lease receivable. The lease receivable in a direct financing lease is best defined as a. the amount of funds the lessor has tied up in the asset which is the subject of the direct financing lease b. the difference between the lease payments receivable and the fair market value of the leased property c. the present value of minimum lease payments d. the total book value of the asset less any accumulated depreciation recorded by the lessor prior to the lease agreement
c. the present value of minimum lease payments