Intermediate Accounting 3 - Exam 1 (Ch 15 & 16)

In an operating lease in which the asset's economic life and lease term are different:

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 greater than the carrying value of the leased asset

Geron Co. recorded a right-of-use asset of $400,000 in a ten-year finance lease. The interest rate charged by the lessor was 10%. The balance in the right-of-use asset after two years will be:

$320,000. ($400,000/10 years= $40,000 per year. After two years = 2x $40,000= $80,000. $400,000 - $80,000= $320,000.)

List Corporation reported pretax accounting income of $90,000, but due to temporary differences, taxable income is only $50,000. Assuming a tax rate of 40%, the income statement should report net income of:

$54,000. ---> $90,000 - (90,000 x .40%)= $54,000

Waldman Corporation reported pretax accounting income of $100,000, but due to a permanent difference, taxable income is only $60,000. Assuming a tax rate of 25%, the income statement should report net income of: $15,000 $25,000 $45,000 $85,000

$85,000. ---> $100,000 - ($60,000 x .25%)= $85,000

Which of the following creates a deferred tax liability?

An unrealized gain from recording investments at fair value

In a ten-year finance lease, the portion of the annual lease payment in the lease's third year that represents interest is:

Less than in the second year

Temporary differences arise when expenses are reported in the income statement: a. After they are deductible for tax purposes= Yes, Before they are deductible for tax purposes= Yes. b. Yes, No. c. No, No

Option A

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: a. Interest Expense= No, Reduction of lease liability= Yes. b. Interest Expense= Yes, Reduction of lease liability= No. c. Interest Expense= Yes, Reduction of lease liability= Yes

Option A

Typically, the tax effects of an operating loss carryforward on net income are:

Recognized in the year the loss occurs

Which of the following creates a deferred tax asset?

Rent collected in advance

A necessary condition for a sales-type lease is:

The lessee considers the lease to be a finance lease

The income tax benefit of an operating loss carryforward reduces the tax expense reported in the income statement:

Unless its more likely than not that the future tax savings will not be realized

Using straight-line depreciation for financial reporting purposes and MACRS for tax purposes creates:

a deferred tax liability

If it is "reasonably certain" that the lessee will exercise a purchase option:

a. The lease is classified as a finance/sales-type lease. b. Both the lessee & lessor consider the exercise price of the option to be an additional cash payment. c. It's assumed that the lease term ends on the date that the option is expected to be exercised. (All 3 answers are correct)

Pyramid Properties entered a lease that contains a bargain purchase option. When calculating the amount to capitalize as a right-of-use asset at the beginning of the lease term, the payment called for by the bargain purchase option should be:

added at its present value

Which of the following is not a sufficient criterion for a lessee to classify a lease as a finance lease?

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

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

Which of the following would a lessee not record in connection with a lease?

lease revenue

Which of the following leases would least likely be classified as an operating lease by the lessee?

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

If a finance lease contains a bargain purchase option, the lessee should amortize the leased asset:

over the economic life of the asset

Which of the following would a lessor not record in connection with a lease?

right-of-use asset

We classify a lease as a finance lease if:

the usual risks and rewards are transferred to the lessee.