Exam 20: Accounting for Leases

Which of the following is not included in the minimum lease payments?

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

On January 1, 2016, Rhyme Co. leased equipment by signing a six-year lease that required six payments of $30,000 due on January 1 of each year with the first payment due January 1, 2016. The equipment remains the property of the lessor at the end of the lease, and Rhyme does not guarantee any residual value. Using an 8% cost of capital, Rhyme capitalized the lease on January 1, 2016, in the amount of $149,781. What is the total amount of lease liability including interest) Rhyme should report as of December 31, 2017?

A six-year operating lease requires annual rent payments of $15,000 for years 1, 2, and 3, and annual rent payments of $10,000 for years 4, 5, and 6. The agreement also requires the lessor to pay a $2,800 annual insurance premium for the leased property. Which of the following amounts should be recognized as the rental revenue in year 1 by the lessor?

Which statement is not true?

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, -Refer to Exhibit 20-3. What is the amount of sales revenue to be recognized by Quinn on January 1, 2016,?

From the lessor's standpoint, which of the following statements regarding leasing is false?

Exhibit 20-5 The Baltimore, Inc. entered into a five-year lease with the Waugh Chapel Company on January 1, 2016. Baltimore, the lessor, will require that five equal annual payments of $25,000 be made at the beginning of each year. The first payment will be made on January 1, 2016. The lease contains a bargain purchase option price of $12,000, which the lessee may exercise on December 31, 2020. The lessee pays all executory costs. The cost of the leased property and its normal selling price are $95,000 and $118,236, respectively. Collectibility of the future lease payments is reasonably assured, and the lessor does not expect to incur any future costs related to the lease. Present value factors for a 7% -Refer to Exhibit 20-5. If Baltimore requires a 7% annual return, how much gross profit will Baltimore record at the inception of the lease?

A direct financing lease differs from a sales-type lease in that

The Roger Company leased a machine at the beginning of 2016. The machine was properly capitalized by Roger at $73,735. A lease payment of $16,563 is due at the end of each year. The expected life of the machine is seven years, and the term of the lease is five years. At the beginning of 2021, the machine will be returned to the lessor. Both Roger and the lessor use the straight-line method of depreciation. What amount of depreciation expense should Roger record in 2016 for the machine round calculations up to the nearest dollar)?

Which is not an advantage of leasing from a lessee's viewpoint?

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

On January 1, 2016, Stacie signed a lease agreement with Amy. Amy will use the equipment and make ten annual payments of $15,000 beginning December 31, 2016. The lease is considered to be a sales-type lease. When reading the Stacie income statement, you would expect to find which of the following accounts?

If a sales-type lease is renewed at the end of a lease term, the lessor must account for the lease as if it were a direct financing lease.

Which of the following facts would preclude a lessor from classifying a lease as a sales-type or direct financing lease?

On January 1, 2006, Solitaire Company leased equipment for 7 years. The lease required an annual payment of $25,000 each for the first 4 years and an annual payment of $15,000 each for the remaining years. The lease agreement required Solitaire Company to pay $5,000 as annual insurance premium. On December 31, 2006, Solitaire Company paid $3,800 for repairs. Which of the following amounts was recorded as the rental revenue by the lessor at the end of Year 5?

A lessee reports noncash investing and financing activity on the statement of cash flows when recording a capital lease.

When a lessor receives cash on a sales-type lease, which of the following accounts is decreased?

Costs of maintaining leased property such as insurance, maintenance, and property taxes are referred to as

For which of the following conditions will the lessor classify a lease as a sales-type lease?