Exam 1: CH. 13-15

In finance lease:

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

Jane's Donut Co. borrowed $194,000 on January 1, 2021, and signed a 2 year note bearing interest at 11%. Interest is payable in full at maturity on January 1, 2023. In connection with this note. Jane should report interest expense at December 31, 2021, in then amount of:

$21,340

Jane's Donut Co. borrowed $198,000 on January 1, 2021, and signed a 2 year note bearing interest at 14%. Interest is payable in full at maturity on January 1, 2023. In connection with this note, Jane's should report interest expense at December 31, 2021, in the amount of:

$27,720

Universal Travel Inc. borrowed $500,000 on November 1, 2021, and signed a 12-month note bearing interest at 6%. Interest payable in full at maturity on October 31, 2022. In connection with this note, Universal Travel Inc. should report interest payable at December 31, 2021, in the amount of:

$5,000

Maintenance fees:

Nonlease components

The most common type of liability is:

One to be paid in cash and for which the amount and timing are known.

A discount on a noninterest-bearing note payable is classified in the balance sheet as:

a contra liability

When cash is received from customers in the form of a refundable deposit, the cash account is increased with a corresponding increase in:

a current liability

Which of the following is NOT a current liability:

a note payable due in 2 years

Which of the following is the best definition of a current liability:

an obligation expected to be satisfied with current assets or by the creation of other current liabilities.

Which of the following is not a liability:

an unused line of credit

Additional cash payments included in lease liability calculation:

bargain purchase option

GAAP requires that some lease agreements be accounted for as purchases of assets. The theoretical justification for this treatment is that a lease of this type:

conveys most of the benefits of property ownership

All of the following but one represent collections for third parties. Which one of the following is NOT a collection for a third party:

customer deposits

Initial direct costs:

sales-type lease selling expense

The rate of interest printed on the face of a note payable is called the:

stated rate

The rate of interest that actually is incurred on a bond payable is called the:

effective rate

Leasing has become the number one method of external financing by U.S. companies. Reasons include each of the following except:

extended use of the asset

From the perspective of the lessee, leases may be classified as either:

finance or operating

Which of the following is not a characteristic of a liability:

it must be payable in cash

For a bond issue that sells for more than the bond face amount, the effective interest rate is:

less than the rate stated on the face of the bond

Interest expense is:

the effective interest rate times the amount of the debt outstanding during the interest period.

Residual value:

lessee's guarantee

At times, businesses require advance payments from customers that will be applied to the purchase price when goods are delivered or services provided. These customer advances represent:

liabilities until the product or service is provided.

Short-term lease:

no amortization of lease asset.

Operating costs borne by the lessee:

nonlease components

Amortization a "plug" figure:

operating lease

Straight - line lease expense:

operating lease

Bonds usually sell at their:

present value

Viewed as an additional payment when reasonably certain:

purchase option

Viewed as an additional payment when less than guarantee:

residual value

When a finance lease is first recorded at the beginning of the lease, the lessee typically debits:

right-of-use asset