Question 1

Which statement is correct?

Accepted Answer

A) In an operating lease,the lessee uses the asset for most of the asset's useful life. 
B) The lessee expenses the cost of the lease in the period the benefits are received in an operating lease. 
C) An operating lease transfers the risks and rewards from the lessor to the lessee. 
D) In an operating lease,the lessee records an asset for the property being used. 
A) In an operating lease,the lessee uses the asset for most of the asset's useful life. 
B) The lessee expenses the cost of the lease in the period the benefits are received in an operating lease. 
C) An operating lease transfers the risks and rewards from the lessor to the lessee. 
D) In an operating lease,the lessee records an asset for the property being used. B

Question 2

Here are the terms of a lease agreement:
 $$\begin{array} { | l | l | } 
\hline \text { Fair value of leased asset } & 500,000 \
\hline \text { Lease term } & 15 \text { years } \
\hline \text { Payment frequency } & \text { Annual } \
\hline \text { Payment timing } & \text { End of year } \
\hline \text { Guaranteed residual value } & 0 \
\hline \text { Interest rate implicit in lease (known to lessee) } & 5 \% \
\hline \text { Lessee's incremental borrowing rate } & 5 \% \
\hline
\end{array}$$ Requirement:
Determine the amount of lease payment that the lessor would require to lease the asset.

Accepted Answer

Computation of required lease payments   Using BAII Plus: 15 N,5 I/Y,-500,000 PV,CPT PMT

Question 3

Which statement is correct about the "guaranteed residual value"?

Accepted Answer

A) It is included in the minimum lease payment calculation. 
B) Lessee assumes the risk of the property falling below the guaranteed amount. 
C) Lessor assumes the risk of the property falling below the guaranteed amount. 
D) It is an executory cost in the lease arrangement. 
A) It is included in the minimum lease payment calculation. 
B) Lessee assumes the risk of the property falling below the guaranteed amount. 
C) Lessor assumes the risk of the property falling below the guaranteed amount. 
D) It is an executory cost in the lease arrangement. C

Question 4

Under IFRS,assuming all information is available,which rate is used by the lessee in the minimum lease calculation?

Accepted Answer

A) Implicit borrowing rate. 
B) Lessee's incremental borrowing rate. 
C) Lower of the incremental and implicit rate. 
D) Either the incremental or implicit rate. 
A) Implicit borrowing rate. 
B) Lessee's incremental borrowing rate. 
C) Lower of the incremental and implicit rate. 
D) Either the incremental or implicit rate.

Question 5

For the following lease,determine the minimum lease payments for the lessee. $$\begin{array} { | l | l | } 
\hline \text { Annual lease payment at the end of the end } & \$ 23,104 \
\hline \text { Lease term } & 5 \
\hline \text { Incremental rate } & 10 \% \
\hline \text { Implicit rate (unknown to lessee) } & 8\% \
\hline \text { Unguaranteed residual value } & 10,000 \
\hline \text { Guaranteed residual value } & 20,000 \
\hline
\end{array}$$

Accepted Answer

A) 87,582 
B) 93,792 
C) 100,001 
D) 106,210 
A) 87,582 
B) 93,792 
C) 100,001 
D) 106,210

Question 6

Here are the terms of a lease agreement:
 $$\begin{array} { | l | l | } 
\hline \text { Fair value of leased asset } & 50,000 \
\hline \text { Lease term } & 4 \text { years } \
\hline \text { Payment frequency } & \text { Annual } \
\hline \text { Payment timing } & \text { End of year } \
\hline \text { Guaranteed residual value } & 25,000 \
\hline \text { Interest rate implicit in lease (known to lessee) } & 5 \% \
\hline \text { Lessee's incremental borrowing rate } & 8 \% \
\hline
\end{array}$$ Requirements:
a.Determine the amount of lease payment that the lessor would require to lease the asset.
b.Compute the present value of minimum lease payments for the lessee.

Accepted Answer

a.Computation of required lease payments

Question 7

Which statement is correct?

Accepted Answer

A) Lessees prefer finance leases. 
B) Lessees prefer operating leases. 
C) Operating leases are more favourable to the lessor in the short term. 
D) Finance leases are more favourable to the lessee in the short term. 
A) Lessees prefer finance leases. 
B) Lessees prefer operating leases. 
C) Operating leases are more favourable to the lessor in the short term. 
D) Finance leases are more favourable to the lessee in the short term.

Question 8

For the following lease,determine the minimum lease payments for the lessee. $$\begin{array} { | l | l | } 
\hline \text { Annual lease payment at the end of the end } & \$ 23,104 \
\hline \text { Lease term } & 5 \
\hline \text { Incremental rate } & 10 \% \
\hline \text { Implicit rate (unknown to lessee) } & 8\% \
\hline \text { Unguaranteed residual value } & 10,000 \
\hline \text { Guaranteed residual value } & 20,000 \
\hline
\end{array}$$

Accepted Answer

A) 99,053 
B) 100,001 
C) 105,859 
D) 106,210 
A) 99,053 
B) 100,001 
C) 105,859 
D) 106,210

Question 9

The following amortization schedule is for a lease entered into at the start of fiscal 2011 for an asset that will be useful for 5 years.The company uses straight-line depreciation method.
   Required:
Provide the appropriate presentation of this lease in the lessee's balance sheet for December 31,2012,distinguishing amounts that are current from those that are non-current.

Accepted Answer

Balance sheet presentation for December

Question 10

The following are some of the characteristics of an asset available for lease:
 $$\begin{array} { | l | l | } 
\hline \text { Fair value of leased asset } & 80,000 \
\hline \text { Useful life } & 10 \text { years } \
\hline \text { Lease term } & 7 \text { years } \
\hline \text { Payment frequency } & \text { Annual } \
\hline \text { Payment timing } & \text { Beginning of year } \
\hline \text { Guaranteed residual value } & 10,000 \
\hline \text { Interest rate implicit in lease (not known to lessee) } & 10 \% \
\hline \text { Lessee's incremental borrowing rate } & 8 \% \
\hline
\end{array}$$ Requirements:
a.Determine the amount of lease payment that the lessor would require to lease the asset.
b.Compute the present value of minimum lease payments for the lessee.
c.Compute the present value of minimum lease payments for the lessor.
d.Evaluate whether the lessee should classify the lease as operating or capital lease using the quantitative guidelines in ASPE.

Accepted Answer

a.Computation of required lease payments

Question 11

For the following lease,determine the minimum lease payments for the lessor. $$\begin{array} { | l | l | } 
\hline \text { Annual lease payment at the end of the end } & \$ 32,000 \
\hline \text { Lease term } & 5 \
\hline \text { Incremental rate } & 11 \% \
\hline \text { Implicit rate (knownto lessee) } & 9 \% \
\hline \text { Executory costs } & 10,000 \
\hline
\end{array}$$

Accepted Answer

A) 81,310 
B) 85,572 
C) 118,269 
D) 124,469 
A) 81,310 
B) 85,572 
C) 118,269 
D) 124,469

Question 12

For the following lease,determine the minimum lease payments for the lessor. $$\begin{array} { | l | l | } 
\hline \text { Annual lease payment at the end of the end } & \$ 23,000 \
\hline \text { Lease term } & 5 \
\hline \text { Incremental rate } & 10 \% \
\hline \text { Implicit rate (knownto lessee) } & 8\% \
\hline \text { Unguaranteed residual value } & 5,000 \
\hline \text { Guaranteed residual value } & 00,000 \
\hline
\end{array}$$

Accepted Answer

A) 91,832 
B) 102,711 
C) 105,444 
D) 108,846 
A) 91,832 
B) 102,711 
C) 105,444 
D) 108,846

Question 13

On January 1,2011,Teddy Company sold a building to Breezy Bank for $40,000,000 and immediately leased it back under a 25-year non-cancellable lease at $3,208,000 per year,payable at the beginning of each year.Breezy used an implicit rate of 7% to determine the lease payments,and this rate is known to Teddy.The building had a carrying value of $12,000,000 on Teddy's books.
Requirement:
Assume that the lease is a finance lease for both the lessee and lessor,and there is no profit margin for the lessor.Prepare all necessary journal entries for 2011 for Teddy (the seller-lessee)and Breezy (the buyer-lessor).Teddy will continue to depreciate the building on a straight-line basis over the lease term.Explain the implications to Teddy's depreciation expense of this transaction.

Accepted Answer

Assume that the lease is a finance lease

Question 14

The following amortization schedule is for a lease entered into at the start of fiscal 2012 for an asset that will be useful for 5 years.The company uses straight-line depreciation method.
   Required:
Provide the appropriate presentation of this lease in the lessee's balance sheet for December 31,2013,distinguishing amounts that are current from those that are non-current.

Accepted Answer

Balance sheet presentation for December

Question 15

Viribana Corporation started operations on March I,2009.It needs to acquire a special piece of equipment for its manufacturing operations.It is evaluating two options as follows.
Option 1: Lease the equipment for 10 years.Lease payments would be $11,200 per year,due at the beginning of each fiscal year (March I).Viribana's incremental borrowing rate is 12%.There is no bargain purchase or renewal option.Viribana is responsible for all executory costs of operating the equipment.
Option 2: Purchase the equipment for $71,000 by borrowing the full purchase amount at 12% over 10 years.This price is considered the fair value of the equipment.Payments are due at the end of each fiscal year (February 28).
The equipment has a useful life of 10 years and would be depreciated on a straight-line basis.No residual value is expected to exist at the end of 10 years.
Requirements:
a.Calculate the present value of the lease payments (Option 1).
b.Calculate the payment that would be required under the purchase option (Option 2).
c.Calculate and briefly discuss the financial impact of each option on the non-current assets,total liabilities,and net income of Viribana for the first year of operations.Assume all payments were made when due.Show your calculations.
d.Indicate which option you would recommend for Viribana.Provide one explanation to support your recommendation.

Accepted Answer

a.Present value of lease: @#IMG-DLM& b.Loan paymen

Question 16

For the following lease,determine the minimum lease payments for the lessor. $$\begin{array} { | l | l | } 
\hline \text { Annual lease payment at the end of the end } & \$ 22,000 \
\hline \text { Lease term } & 5 \
\hline \text { Incremental rate } & 10 \% \
\hline \text { Implicit rate (unknown to lessee) } & 8 \% \
\hline \text { Unguaranteed residual value } & 15,000 \
\hline
\end{array}$$

Accepted Answer

A) 83,400 
B) 92,711 
C) 98,048 
D) 102,304 
A) 83,400 
B) 92,711 
C) 98,048 
D) 102,304

Question 17

The following are some of the characteristics of an asset available for lease:
 $$\begin{array} { | l | l | } 
\hline \text { Fair value of leased asset } & 150,000 \
\hline \text { Lease term } & 8 \text { years } \
\hline \text { Payment frequency } & \text { Annual } \
\hline \text { Payment timing } & \text { Beginning of year } \
\hline \text { Guaranteed residual value } & 25,000 \
\hline \text { Interest rate implicit in lease (not known to lessee) } & 9 \% \
\hline \text { Lessee's incremental borrowing rate } & 8 \% \
\hline
\end{array}$$ Requirements:
a.Determine the amount of lease payment that the lessor would require to lease the asset.
b.Compute the present value of minimum lease payments for the lessee.

Accepted Answer

a.Computation of required leas

Question 18

Which statement is correct about "agency cost of leasing"?

Accepted Answer

A) Conditions can be added to the lease agreement to increase agency costs. 
B) Agency costs are nil if the lease contract covers the entire useful life of the asset. 
C) Assets that are difficult to damage are better candidates for leasing. 
D) Assets that are difficult to damage have higher agency costs. 
A) Conditions can be added to the lease agreement to increase agency costs. 
B) Agency costs are nil if the lease contract covers the entire useful life of the asset. 
C) Assets that are difficult to damage are better candidates for leasing. 
D) Assets that are difficult to damage have higher agency costs.

Question 19

On January 1,2011,Sheldon Company sold a building to Breezy Board Bank for $52,000,000 and immediately leased it back under a 15-year non-cancellable lease at $5,918,000 per year,payable at the beginning of each year.Breezy Board used an implicit rate of 9% to determine the lease payments,and this rate is known to Sheldon.The building had a carrying value of $34,000,000 on Sheldon's books.
Requirement:
Assume that the lease is an finance lease for both the lessee and lessor for both the lessee and lessor,and there is no profit margin for the lessor.Prepare all necessary journal entries for 2011 for Sheldon (the seller-lessee)and Breezy Board (the buyer-lessor).Breezy Board will depreciate the building on a straight-line basis over the remaining useful life of 15 years.Explain the implications to Soldier's depreciation expense of this transaction.

Accepted Answer

Assume that the lease is a finance lease

Question 20

On July 1,2011,Janus Company leased equipment to Pluto Company.The terms of the lease are as follows:
 $$\begin{array} { | l | l | } 
\hline \text { Fair value of leased asset } & 60,000 \
\hline \text { Lease payments, due at end of lease term } & \
\text { starting June } 30,2012 & 12,000 \
\hline \text { Lease term } & 9 \text { years } \
\hline \text { Economic life of leased asset } & 10 \text { years } \
\hline \text { Guaranteed residual value } & 6,000 \
\hline \text { Lessee's incremental borrowing rate } & 15 \% \
\hline
\end{array}$$ Pluto uses straight-line depreciation for its property,plant,and equipment,and its year-end is December 31.
Requirement:
Prepare the journal entries for the lease from July 1 through December 31.

Accepted Answer

First compute the value of the lease usi

Which statement is correct?

Which statement is correct about the "guaranteed residual value"?

Under IFRS,assuming all information is available,which rate is used by the lessee in the minimum lease calculation?

For the following lease,determine the minimum lease payments for the lessee. Annual lease payment at the end of the end \ 23,104 Lease term 5 Incremental rate 10\% Implicit rate (unknown to lessee) 8\% Unguaranteed residual value 10,000 Guaranteed residual value 20,000

Which statement is correct?

For the following lease,determine the minimum lease payments for the lessee. Annual lease payment at the end of the end \ 23,104 Lease term 5 Incremental rate 10\% Implicit rate (unknown to lessee) 8\% Unguaranteed residual value 10,000 Guaranteed residual value 20,000

For the following lease,determine the minimum lease payments for the lessor. Annual lease payment at the end of the end \ 32,000 Lease term 5 Incremental rate 11\% Implicit rate (knownto lessee) 9\% Executory costs 10,000

For the following lease,determine the minimum lease payments for the lessor. Annual lease payment at the end of the end \ 23,000 Lease term 5 Incremental rate 10\% Implicit rate (knownto lessee) 8\% Unguaranteed residual value 5,000 Guaranteed residual value 00,000

For the following lease,determine the minimum lease payments for the lessor. Annual lease payment at the end of the end \ 22,000 Lease term 5 Incremental rate 10\% Implicit rate (unknown to lessee) 8\% Unguaranteed residual value 15,000

Which statement is correct about "agency cost of leasing"?

Current Liabilities and Contingencies

Non-Current Financial Liabilities

Equities

Complex Financial Instruments

Earnings Per Share

Accounting for Income Taxes

Pensions and Other Employee Future Benefits

Statement of Cash Flows

Filters

Exam 18: Accounting for Leases

Which statement is correct?

Which statement is correct about the "guaranteed residual value"?

Under IFRS,assuming all information is available,which rate is used by the lessee in the minimum lease calculation?

For the following lease,determine the minimum lease payments for the lessee. Annual lease payment at the end of the end \ 23,104 Lease term 5 Incremental rate 10\% Implicit rate (unknown to lessee) 8\% Unguaranteed residual value 10,000 Guaranteed residual value 20,000

Which statement is correct?

For the following lease,determine the minimum lease payments for the lessee. Annual lease payment at the end of the end \ 23,104 Lease term 5 Incremental rate 10\% Implicit rate (unknown to lessee) 8\% Unguaranteed residual value 10,000 Guaranteed residual value 20,000

For the following lease,determine the minimum lease payments for the lessor. Annual lease payment at the end of the end \ 32,000 Lease term 5 Incremental rate 11\% Implicit rate (knownto lessee) 9\% Executory costs 10,000

For the following lease,determine the minimum lease payments for the lessor. Annual lease payment at the end of the end \ 23,000 Lease term 5 Incremental rate 10\% Implicit rate (knownto lessee) 8\% Unguaranteed residual value 5,000 Guaranteed residual value 00,000

For the following lease,determine the minimum lease payments for the lessor. Annual lease payment at the end of the end \ 22,000 Lease term 5 Incremental rate 10\% Implicit rate (unknown to lessee) 8\% Unguaranteed residual value 15,000

Which statement is correct about "agency cost of leasing"?

Current Liabilities and Contingencies

Non-Current Financial Liabilities

Equities

Complex Financial Instruments

Earnings Per Share

Accounting for Income Taxes

Pensions and Other Employee Future Benefits

Statement of Cash Flows

Filters