Exam 21: Accounting for Leases

If a lease is classified as a capital lease because the present value of the minimum lease payments is equal to 90% or more of the fair value of the leased property, the time period to be used by the lessee to amortize the leased property is the

Which of the following facts would require a lessor to classify a lease as an operating lease?

In certain respects, IFRS provide more principles-based guidance in accounting for lease transactions.Describe the differences between IFRS and GAAP in lease capitalization criteria that demonstrate the more principles-based approach of the IFRS.

When a lessee makes periodic cash payments for a capital lease, which of the following accounts is increased?

The lessee should classify a non-cancellable long-term lease as a capital lease if

An operating lease should be recorded in the lessee's accounts at the inception of the lease at an amount equal to

If a lease qualifies as a capital lease, which of the following combinations of payments would be included?

Current GAAP requires a lessee to account for certain leases as capital leases. Required: What is the rationale for requiring companies to account for leases as capital leases?

On January 1, 2010, Columbus Properties sold a building to another company and immediately leased it back again.The Columbus' book value for the building was $15, 954.The lease was for five years with $5, 000 payable at the end of each year.The payments, discounted at 10%, equaled $18, 954.Which entry would Columbus Properties not make in 2010?

Depreciation expense will be recorded in the accounts of the lessee and lessor for which type of leases? Lessee Lessor I. operating direct financing II. capital operating III. operating operating IV. capital sales-type

Minimum lease payments do not include

Lessees may try to avoid having a lease be classified as a capital lease.Explain why a lessee might want to avoid a capital lease and how the FASB rules may be overcome to allow classification as an operating lease.

On January 1, 2010, Larry, Inc.leased equipment, signing a five-year lease that requires five payments of $40, 000 due on January 1 of each year with the first payment due January 1, 2010.Larry accounted for the lease as a capital lease.Using a rate of 9%, Larry determined the present value on January 1, 2010, to be $169, 589.What is the amount of the long-term lease obligation that Larry should report on its December 31, 2011 balance sheet?

Exhibit 21-3 On January 1, 2010, Quincy Company enters into a five-year sales-type lease with Andy Company.The lease requires Andy to make five annual payments at the beginning of the year, with the first payment due January 1, 2010.The lease includes a bargain purchase price of $10, 000.Quincy requires a 10% rate of return.The cost to Quincy of the property is $100, 000, and it has a fair value of $150, 000.Present value factors for a 10% interest rate are as follows: Present value of \ 1 for n=1 0.909091 Present value of \ 1 for n=5 0.620921 Present value of an ordinary annuity for n=5 3.790787 Present value of an annuity due for n=5 4.169865 -Refer to Exhibit 21-3.The annual lease payment Quincy would require is (round the answer to the nearest dollar)

Exhibit 21-1 On January 1, 2010, Victor Company signed a lease agreement requiring six annual payments of $60, 000, beginning December 31, 2010.The lease qualifies as a capital lease.Victor's incremental borrowing rate was 9% and the lessor's implicit rate, known by Victor, was 10%.The present value factors of an ordinary annuity of $1 for six periods for interest rates of 9% and 10% are 4.485919 and 4.355261, respectively. - Refer to Exhibit 21-1.The interest expense for 2010 would be (round answers to the nearest dollar)

A lease will be treated as a direct financing lease by the lessor when

Which of the following is a required disclosure by a lessee of a capital lease?

In a sales-type lease

Dillon Co., a lessor, signed a direct financing lease on January 1.The cost and fair value of the machine that was leased was $60, 000.The implicit interest rate was 6%.The lease period was seven years, with the first payment due immediately.Actuarial information for 6% follows: 6 Years 7 Years 8 Years Present value of ordinary anuity of \ 1 4.91732 5.58238 6.20979 What is the annual lease payment to be collected by Dillon?

On January 1, Lessee Company incorrectly recorded a 10-year capital lease as an operating lease.The lease requires annual payments.As a result of the recording error, Lessee Company's current ratio and debt to stockholders' equity ratio will be Debt to Stockholders Current Ratio Equity Ratio I. not affected not affected II. understated understated III. overstated overstated IV. nwerctated 11verctated