Ch.15 - ACC302

If it is "reasonably certain" that the lessee will exercise a purchase option: ---------------------------------------------- The lease is classified as a finance/sales-type lease. Both the lessee and the lessor consider the exercise price of the option to be an additional cash payment. It's assumed that the lease term ends on the date that the option is expected to be exercised. All of these answer choices are correct.

All of these answer choices are correct.

Leasing has become the number one method of external financing by U.S. companies. Reasons include each of the following except: Lower upfront cash needed to use an asset. Tax advantages. Extended use of the asset. Protection against obsolescence.

Extended use of the asset.

On January 1, 2021, Walter Scott Co. leased non-specialized machinery under a 6-year lease. The machinery has a 9-year economic life. The present value of the monthly lease payments is determined to be 80% of the machinery's fair value. The lease contract includes neither a transfer of title to Scott nor a bargain purchase option. What amount should Scott report in its 2021 income statement? Lease expense equal to the 2021 lease payments. Lease expense equal to the 2021 lease payments minus interest. Amortization expense equal to one-ninth of the machinery's fair value. Amortization expense equal to one-sixth of the machinery's fair value.

Lease expense equal to the 2021 lease payments.

Which of the following would a lessee not record in connection with a lease? Right-of-use asset. Interest expense. Amortization expense. Lease revenue.

Lease revenue.

In a ten-year finance lease, the portion of the annual lease payment in the lease's third year that represents interest is: The same as in the first year. More than in the second year. The same as in the fourth year. Less than in the second year.

Less than in the second year.

The beginning of a six-year finance lease is December 31, 2021. The agreement specifies equal annual lease payments on December 31 of each year. For the lessee, the first payment on December 31, 2021, includes: Interest reduction of the Expense Lease Liability a) No Yes b) Yes No c) Yes Yes d) No no

Option a

If a finance lease contains a bargain purchase option, the lessee should amortize the leased asset: Without reference to the economic life of the asset. Without reference to the term of the lease. Over the term of the lease. Over the economic life of the asset.

Over the economic life of the asset.

On January 1, 2021, Jackson Properties leased a warehouse to Jensen Distributors. The operating lease provided for a nonrefundable bonus paid by Jensen. Jackson should recognize the bonus in earnings: At the expiration of the lease. Over the life of the lease. At the beginning of the lease. When the bonus is received.

Over the life of the lease.

Which of the following would a lessor not record in connection with a lease? Lease receivable. Lease revenue. Right-of-use asset. Interest revenue.

Right-of-use asset.

Which of the following leases would least likely be classified as an operating lease by the lessee? Ownership of the leased asset reverts to the lessor at the end of the lease term. The fair value of the leased asset is $20 million and the present value of the lease payments is $13 million. The agreement permits the lessee to buy the leased asset for one dollar at the end of the lease term. The lease term is 5 years and the economic life of the leased asset is 8 years.

The agreement permits the lessee to buy the leased asset for one dollar at the end of the lease term.

Which of the following is not required in order for a contract to contain a lease? The customer can derive substantially all of the potential economic benefits from using the asset. The customer can direct the use of the asset throughout the contract term. The provider cannot have the right to substitute alternative assets during the period of use and could benefit economically from such a substitution. The asset must be explicitly identified in the contract.

The asset must be explicitly identified in the contract.

Which of the following is not a sufficient criterion for a lessee to classify a lease as a finance lease? The lessee has the option of acquiring the asset during or at the end of the lease term at a bargain price. The lease term is greater than two-thirds of the economic life of the asset. The lease transfers ownership of the leased asset to the lessee at the end of the lease term. The present value of the lease payments is substantially all of the fair value of the leased asset.

The lease term is greater than two-thirds of the economic life of the asset.

In an operating lease in which the asset's economic life and lease term are different: The lessee amortizes the leased asset over the term of the lease at a straight-line amount. The lessor amortizes the leased asset over the term of the lease. The lessee amortizes the asset over its economic life. The lessee amortizes the leased asset at an amount that increases each period.

The lessee amortizes the leased asset at an amount that increases each period.

Which of the following is not a sufficient criterion for a lessor to classify a lease as a sales-type lease? The present value of the lease payments is substantially all of the fair value of the leased asset. The lease transfers ownership of the leased asset to the lessee at the end of the lease term. The present value of the lease payments is greater than the carrying value of the leased asset. The lessee has the option of acquiring the asset during or at the end of the lease term at a bargain price.

The present value of the lease payments is substantially all of the fair value of the leased asset.

One criterion for an arrangement to constitute a lease is that we have an identified asset. Which of the following is required in order for a contract to contain an identified asset? The customer can derive substantially all of the potential economic benefits from using the asset. The property must be property, plant, or equipment (not inventory, intangibles, or natural resources). The lease is classified as a finance/sales-type lease. The provider cannot have the right to substitute alternative assets during the period of use and could benefit economically from such a substitution.

The property must be property, plant, or equipment (not inventory, intangibles, or natural resources).

We classify a lease as a finance lease if: the usual risks and rewards are retained by the lessor. the usual risks and rewards are transferred to the lessee. the present value of lease payments is less than the asset's fair value. the present value of lease payments is less than the asset's book value.

the usual risks and rewards are transferred to the lessee.