Question 1

Which will increase the "agency cost of leasing"?

Accepted Answer

A) Having a bargain purchase option in the lease agreement. 
B) Having maintenance requirements for the leased asset. 
C) Leasing assets that are easy to damage. 
D) Having a guaranteed residual value by the lessee. 
A) Having a bargain purchase option in the lease agreement. 
B) Having maintenance requirements for the leased asset. 
C) Leasing assets that are easy to damage. 
D) Having a guaranteed residual value by the lessee. C

Question 2

Which factor would contribute toward the lessor classifying a lease as a finance lease?

Accepted Answer

A) Lessor retains risk of breakage to leased asset. 
B) Lessor has reward of high resale value. 
C) Lessor does not have risk of change in demand for the leased asset. 
D) Lessor does not have guaranteed residual value. 
A) Lessor retains risk of breakage to leased asset. 
B) Lessor has reward of high resale value. 
C) Lessor does not have risk of change in demand for the leased asset. 
D) Lessor does not have guaranteed residual value. C

Question 3

Which statement is correct about the bargain purchase option (BPO)?

Accepted Answer

A) It is cash that the lessee will receive at the end of the lease. 
B) It cannot be assumed that the BPO will be exercised. 
C) It is excluded in the present value of the lease payment calculation. 
D) It means that it is almost certain that ownership will transfer to the lessee. 
A) It is cash that the lessee will receive at the end of the lease. 
B) It cannot be assumed that the BPO will be exercised. 
C) It is excluded in the present value of the lease payment calculation. 
D) It means that it is almost certain that ownership will transfer to the lessee. D

Question 4

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 easy 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 easy to damage are better candidates for leasing. 
D) Assets that are difficult to damage have higher agency costs.

Question 5

For the lessor, what is the general criterion for deciding whether a lease is an operating or a finance lease?

Accepted Answer

a)Ownership of the leased asset transfer

Question 6

For the lessor, which condition would result in an operating lease?

Accepted Answer

A) Risk of breakage is with the lessee. 
B) Reward of high resale value is with the lessor. 
C) Risk of change in rental rates is with the lessee. 
D) Reward of longer than expected useful life for the leased asset is with the lessee. 
A) Risk of breakage is with the lessee. 
B) Reward of high resale value is with the lessor. 
C) Risk of change in rental rates is with the lessee. 
D) Reward of longer than expected useful life for the leased asset is with the lessee.

Question 7

Under ASPE, what are executory costs?

Accepted Answer

A) Maintenance costs that are applicable to only operating leases. 
B) Maintenance costs that are incurred only when the asset is leased. 
C) Maintenance costs that are incidental costs in a lease that would be incurred by the lessee independent of whether the lessee had purchased or leased the asset. 
D) Maintenance costs that are applicable to only finance leases. 
A) Maintenance costs that are applicable to only operating leases. 
B) Maintenance costs that are incurred only when the asset is leased. 
C) Maintenance costs that are incidental costs in a lease that would be incurred by the lessee independent of whether the lessee had purchased or leased the asset. 
D) Maintenance costs that are applicable to only finance leases.

Question 8

Describe how the buyer-lessor accounts for a sale and leaseback transaction when the sales criteria are not met.

Accepted Answer

When the sales criteria are not met, the

Question 9

List factors that impact the degree to which this agency cost is a factor.

Accepted Answer

a)The inherent nature of the asset that

Question 10

Discuss what is meant by the risk-adjusted rate and which risk adjusted rates the lessee and the lessor should use?

Accepted Answer

Finance theory suggests that the appropr

Question 11

Describe how the seller-lessee amortizes gains on a sale-leaseback transaction that qualifies as a sale.

Accepted Answer

When a sale and leaseback transaction qu

Question 12

What is meant by the agency cost of leasing?

Accepted Answer

The user who controls the asset during t

Question 13

Describe the rationale for the seller-lessee deferring gains or losses on sale-leaseback transactions when the revenue recognition criteria detailed in IFRS 15 have been met.

Accepted Answer

The rationale for deferring gain or loss

Question 14

For the following lease, determine the amount the ROU asset will be initially measured at. $\begin{array}{|l|l|}
\hline \text { Annual payment (due at end of year) } & \$ 23,104 \
\hline \text { Lease term } & 5 \
\hline \text { Incremental borrowing rate } & 10 \% \
\hline \text { Implicit rate (not readily determinable by lessee) } & 8 \% \
\hline \text { Unguaranteed residual value } & \text { NA } \
\hline \text { Guaranteed residual value } & 20,000 \
\hline \text { Expected payout under guarantee } & 20,000 \
\hline
\end{array}$

Accepted Answer

A) 75,164 
B) 78,636 
C) 100,001 
D) 105,859 
A) 75,164 
B) 78,636 
C) 100,001 
D) 105,859

Question 15

Why are there special accounting rules for sale-leaseback transactions?

Accepted Answer

There are special accounting rules for s

Question 16

What are four examples of lease conditions that help mitigate agency costs?

Accepted Answer

a)Damage deposits for apartments deter r

Question 17

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

Accepted Answer

A) The lease payments are lowered to compensate for the agency cost of leasing. 
B) Shorter lease terms decrease the agency cost of leasing. 
C) Agency cost of leasing is an illustration of the "moral hazard" problem. 
D) Agency cost of leasing is an illustration of the "adverse selection" problem. 
A) The lease payments are lowered to compensate for the agency cost of leasing. 
B) Shorter lease terms decrease the agency cost of leasing. 
C) Agency cost of leasing is an illustration of the "moral hazard" problem. 
D) Agency cost of leasing is an illustration of the "adverse selection" problem.

Question 18

For the following lease, determine the amount the ROU asset will be initially measured at. 
$\begin{array}{|l|l|}
\hline \text { Annual payment (due at end of year) } & \$ 22,000 \
\hline \text { Lease term } & 5 \
\hline \text { Incremental borrowing rate } & 10 \% \
\hline \text { Implicit rate (not readily determinable by lessee) } & 8 \% \
\hline \text { Unguaranteed residual value } & 15,000 \
\hline \text { Bargain purchase option } & 5,000 \
\hline
\end{array}$

Accepted Answer

A) 86,502 
B) 91,243 
C) 95,816 
D) 101,451 
A) 86,502 
B) 91,243 
C) 95,816 
D) 101,451

Question 19

For the following lease, determine the amount the ROU asset will be initially measured at. 
$\begin{array}{|l|l|}
\hline \text { Annual payment (due at end of year) } & \$ 23,000 \
\hline \text { Lease term } & 5 \
\hline \text { Incremental borrowing rate } & 10 \% \
\hline \text { Implicit rate (readily determinable by lessee) } & 8 \% \
\hline \text { Unguaranteed residual value } & \mathrm{NA} \
\hline \text { Guaranteed residual value } & 25,000 \
\hline \text { Expected payout under guarantee } & 0 \
\hline
\end{array}$

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 20

For the following lease, determine the amount the ROU asset will be initially measured at. 
$\begin{array}{|l|l|}
\hline \text { Annual payment (due at end of year) } & \$ 22,000 \
\hline \text { Lease term } & 5 \
\hline \text { Incremental borrowing rate } & 10 \% \
\hline \text { Implicit rate (not readily determinable by lessee) } & 8 \% \
\hline \text { Unguaranteed residual value } & 15,000 \
\hline
\end{array}$

Accepted Answer

A) 83,397 
B) 92,711 
C) 98,048 
D) 102,304 
A) 83,397 
B) 92,711 
C) 98,048 
D) 102,304

Which will increase the "agency cost of leasing"?

Which factor would contribute toward the lessor classifying a lease as a finance lease?

Which statement is correct about the bargain purchase option (BPO)?

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

For the lessor, what is the general criterion for deciding whether a lease is an operating or a finance lease?

For the lessor, which condition would result in an operating lease?

Under ASPE, what are executory costs?

Describe how the buyer-lessor accounts for a sale and leaseback transaction when the sales criteria are not met.

List factors that impact the degree to which this agency cost is a factor.

Discuss what is meant by the risk-adjusted rate and which risk adjusted rates the lessee and the lessor should use?

Describe how the seller-lessee amortizes gains on a sale-leaseback transaction that qualifies as a sale.

What is meant by the agency cost of leasing?

Describe the rationale for the seller-lessee deferring gains or losses on sale-leaseback transactions when the revenue recognition criteria detailed in IFRS 15 have been met.

Why are there special accounting rules for sale-leaseback transactions?

What are four examples of lease conditions that help mitigate agency costs?

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

For the following lease, determine the amount the ROU asset will be initially measured at. Annual payment (due at end of year) \ 22,000 Lease term 5 Incremental borrowing rate 10\% Implicit rate (not readily determinable by lessee) 8\% Unguaranteed residual value 15,000 Bargain purchase option 5,000

For the following lease, determine the amount the ROU asset will be initially measured at. Annual payment (due at end of year) \ 22,000 Lease term 5 Incremental borrowing rate 10\% Implicit rate (not readily determinable by lessee) 8\% Unguaranteed residual value 15,000

Current Liabilities and Contingencies

Non-Current Financial Liabilities

Equities

Complex Financial Instruments

Earnings Per Share

Pensions and Other Employee Future Benefits

Accounting for Income Taxes

Accounting Changes

Statement of Cash Flows

Filters

Exam 7: Accounting for Leases

Which will increase the "agency cost of leasing"?

Which factor would contribute toward the lessor classifying a lease as a finance lease?

Which statement is correct about the bargain purchase option (BPO)?

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

For the lessor, what is the general criterion for deciding whether a lease is an operating or a finance lease?

For the lessor, which condition would result in an operating lease?

Under ASPE, what are executory costs?

Describe how the buyer-lessor accounts for a sale and leaseback transaction when the sales criteria are not met.

List factors that impact the degree to which this agency cost is a factor.

Discuss what is meant by the risk-adjusted rate and which risk adjusted rates the lessee and the lessor should use?

Describe how the seller-lessee amortizes gains on a sale-leaseback transaction that qualifies as a sale.

What is meant by the agency cost of leasing?

Describe the rationale for the seller-lessee deferring gains or losses on sale-leaseback transactions when the revenue recognition criteria detailed in IFRS 15 have been met.

Why are there special accounting rules for sale-leaseback transactions?

What are four examples of lease conditions that help mitigate agency costs?

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

For the following lease, determine the amount the ROU asset will be initially measured at. Annual payment (due at end of year) \ 22,000 Lease term 5 Incremental borrowing rate 10\% Implicit rate (not readily determinable by lessee) 8\% Unguaranteed residual value 15,000

Current Liabilities and Contingencies

Non-Current Financial Liabilities

Equities

Complex Financial Instruments

Earnings Per Share

Pensions and Other Employee Future Benefits

Accounting for Income Taxes

Accounting Changes

Statement of Cash Flows

Filters