Exam 20: Accounting for Leases

On January 1, 2016, Denise Company signed a lease agreement requiring ten annual payments of $14,000, beginning December 31, 2016. The agreement was classified as a capital lease. When reviewing Denise's accounting records, which of the following journal entries would not be expected?

Which of the following cash flows is classified as an investing cash flow?

Which of the following items would not be included in the calculation of the capital lease obligation?

Exhibit 20-3 On January 1, 2016, Quinn 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 1,2016. The lease includes a bargain purchase price of $10,000. Quinn requires a 10% rate of return. The cost to Quinn 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: -Refer to Exhibit 20-3. What is the amount of the annual lease payment Quinn would require round the answer to the nearest dollar)?

On January 1, 2016, Watson Company signed a four-year lease requiring annual payments of $45,000, with the first payment due on January 1, 2016. Watson's incremental borrowing rate was 7%. Actuarial information for 7% follows: Assuming the lease qualifies as a capital lease, what amount should be recorded as leased equipment under capital leases on January 1, 2016 rounded to the nearest dollar)?

On January 1, 2016, Donna Company leased equipment by signing a five-year lease that required five payments of $30,000 due on December 31 of each year. The equipment remains the property of the lessor at the end of the lease, and Donna does not guarantee any residual value. Using a rate of 8%, Donna capitalized the lease on January 1, 2016, in the amount of $119,781. What is the amount of interest expense Donna should report on its 2017 income statement?

For a sales-type lease, cost of asset leased is valued by the lessor at

A required disclosure of a direct financing lease is that the cost of property on lease and the amount of the total accumulated depreciation.

Which of the following items should be included in the calculation of the lessor's gross receivable?

Unlike in a direct-financing lease, the lessor in a sales-type lease:

From the lessee's viewpoint, which of the following is not an advantage of leasing?

The lessor should report the Lease Receivable for a sales-type lease on its balance sheet as

A lessee computes the present value of the minimum lease payments using the lower of either the lessee's incremental borrowing rate or the lessor's implicit interest rate in the lease.

If all of the following are provided for by a lease contract, which one is not included in minimum lease payments for the lessee?

Exhibit 20-2 On January 1, 2016, Mary Company leased equipment, signing a five-year lease that requires annual lease payments of $20,000. The lease qualifies as a capital lease. The payments are made at year-end, and the first payment will be made at December 31, 2016. In addition, Mary guarantees the residual value to be $8,000 at the end of the lease term. Mary correctly uses the lessor's implicit interest rate, which is 12%. The present value factors for five periods at 12% are as follows: -Refer to Exhibit 20-2. What is the amount of interest expense associated with the leased equipment for the year ending December 31, 2016?

The lessor is the party in the lease agreement who acquires the right to use the leased asset in exchange for making future lease payments.

Exhibit 20-4 On January 1, 2016, Average Leasing Company entered into a direct financing lease with a lessee, Lenny Company. The lease agreement calls for five equal annual payments of $75,000 at the beginning of each year with the first payment due on January 1, 2016. The leased property has an estimated residual value of $10,000, which Lenny does not guarantee. The property remains the property of Average at the end of the lease term. Average desires a 12% rate of return. Present value factors for a 12% interest rate are as follows: -Refer to Exhibit 20-4. What is the amount of the credit to Unearned Interest: Leases to be recorded by Average Leasing on January 1, 2016 round the answer to the nearest dollar)?

On January 1, 2016, Renee Corp., a lessee, signed a five-year capital lease for new equipment. The lease requires annual payments of $8,000. The first payment is due on December 31, 2016. Renee guaranteed a residual value of $2,000. On December 31, 2020, Renee returned the asset to the lessor, and the asset was appraised at a value of $1,500. Renee should record which of the following on December 31, 2020?

When is it appropriate for the lessee to use the lessor's implicit rate to discount the minimum lease payments?

On January 1, 2003, Plentiva Company signed a five-year lease that required equal payments of $55,000 at the end of each year. The cost value of the lease equipment was $100,000. The estimated residual value of the equipment was $25,000, which was guaranteed by the lessee. The implicit interest rate in the lease was 10%. On January 1, 2003, what amount did Plentiva Company debit to Lease Receivable?