Question 1

List four factors that preclude the seller-lessee from recognizing a sale on a sale and leaseback transaction.

Accepted Answer

∙ The seller-lessee has an option to rep

Question 2

For the following lease, determine the amount the ROU asset will be initially measured at. 
$\begin{array}{|l|l|}
\hline \begin{array}{l}
\text { Annual payment (due at end of } \
\text { year) }
\end{array} & \$ 25,000 \
\hline \text { Lease term } & 5 \
\hline \text { Incremental borrowing rate } & 7 \% \\hline \begin{array}{l}
\text { Implicit rate (readily } \
\text { determinable by lessee) }
\end{array} & 6 \% \
\hline \begin{array}{l}
\text { Non-lease costs included in } \
\text { annual payment }
\end{array} & 2,000 \
\hline
\end{array}$

Accepted Answer

A) 94,305 
B) 96,884 
C) 102,505 
D) 105,309 
A) 94,305 
B) 96,884 
C) 102,505 
D) 105,309

Question 3

For the following lease, determine the amount the ROU asset will be initially measured at. 
$\begin{array}{|l|l|}
\hline \begin{array}{l}
\text { Annual payment (due on commencement date } \
\text { of lease) }
\end{array} & \$ 30,000 \
\hline \text { Lease term } & 5 \\hline \text { Incremental borrowing rate } & 10 \% \
\hline \text { Implicit rate (not readily determinable by lessee) } & 8 \% \
\hline \text { Guaranteed residual value } & 28,000 \
\hline \text { Expected payout under guarantee } & 15,000 \
\hline
\end{array}$

Accepted Answer

A) 123,037 
B) 134,410 
C) 139,573 
D) 142,482 
A) 123,037 
B) 134,410 
C) 139,573 
D) 142,482

Question 4

Under ASPE, which statement is correct for the lessee?

Accepted Answer

A) If the present value of the minimum lease payments exceeds the fair value of the leased asset, the asset will be recorded on the balance sheet at the higher amount. 
B) If the present value of the minimum lease payments exceeds the fair value of the leased asset, the asset will be recorded on the balance sheet at the fair value amount. 
C) If the present value of the minimum lease payments is lower that the fair value of the leased asset, the asset will be recorded on the balance sheet at the unguaranteed residual value amount. 
D) If the present value of the minimum lease payments is lower that the fair value of the leased asset, the implicit rate must be used. 
A) If the present value of the minimum lease payments exceeds the fair value of the leased asset, the asset will be recorded on the balance sheet at the higher amount. 
B) If the present value of the minimum lease payments exceeds the fair value of the leased asset, the asset will be recorded on the balance sheet at the fair value amount. 
C) If the present value of the minimum lease payments is lower that the fair value of the leased asset, the asset will be recorded on the balance sheet at the unguaranteed residual value amount. 
D) If the present value of the minimum lease payments is lower that the fair value of the leased asset, the implicit rate must be used.

Question 5

Which statement is true?

Accepted Answer

A) The guaranteed residual value is provided by the lessor. 
B) The bargain purchase option is not a part of the lease payment calculation. 
C) The incremental borrowing rate is the interest rate that the lessor would have to pay on a similar lease or loan. 
D) One of the risks of ownership is the risk of obsolescence. 
A) The guaranteed residual value is provided by the lessor. 
B) The bargain purchase option is not a part of the lease payment calculation. 
C) The incremental borrowing rate is the interest rate that the lessor would have to pay on a similar lease or loan. 
D) One of the risks of ownership is the risk of obsolescence.

Question 6

Under ASPE, assuming all information is available, which rate is used by the lessee in the lease present value calculations?

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 7

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

Accepted Answer

A) It is an indicator that the lessee will take care of the property. 
B) It is provided by the lessor. 
C) Lessor assumes the risk of the property falling below the guaranteed amount. 
D) It is not included in the present value of the lease payment calculation. 
A) It is an indicator that the lessee will take care of the property. 
B) It is provided by the lessor. 
C) Lessor assumes the risk of the property falling below the guaranteed amount. 
D) It is not included in the present value of the lease payment calculation.

Question 8

What is true respecting the economics behind leasing arrangements?

Accepted Answer

A) By agreeing to provide a guarantee that the leased property will be worth at least a certain amount, the lessor assures the lessee that the property will be treated with due care. 
B) A guaranteed residual value means that the lessee bears the risk and cost of the property falling below the specified value of the guarantee. 
C) Since the lessor is assured of receiving the guaranteed amount (or more), the guaranteed residual value does not form part of the lease payment. 
D) The bargain purchase option (BPO)is not included when calculating the present value of lease payments even though a BPO is almost certain to be exercised. 
A) By agreeing to provide a guarantee that the leased property will be worth at least a certain amount, the lessor assures the lessee that the property will be treated with due care. 
B) A guaranteed residual value means that the lessee bears the risk and cost of the property falling below the specified value of the guarantee. 
C) Since the lessor is assured of receiving the guaranteed amount (or more), the guaranteed residual value does not form part of the lease payment. 
D) The bargain purchase option (BPO)is not included when calculating the present value of lease payments even though a BPO is almost certain to be exercised.

Question 9

For the following lease, determine the amount the ROU asset will be initially measured at.
$\begin{array}{|l|l|}
\hline \text { Annual payment (due at end of year) } & \$ 23,150 \
\hline \text { Lease term } & 5 \
\hline \text { Incremental borrowing rate } & 8 \% \
\hline \text { Implicit rate (readily determinable by lessee) } & 6 \% \
\hline \text { Guaranteed residual value } & 10,000 \
\hline \text { Expected payout under guarantee } & 10,000 \
\hline
\end{array}$

Accepted Answer

A) 92,431 
B) 97,516 
C) 99,237 
D) 104,989 
A) 92,431 
B) 97,516 
C) 99,237 
D) 104,989

Question 10

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 11

Which will decrease the "agency cost of leasing"?

Accepted Answer

A) Leased assets that are easy to damage. 
B) Leased assets that require maintenance and care by the lessee. 
C) Having lease terms that cover small portions of the asset's useful life. 
D) Having an unguaranteed residual value by the lessee. 
A) Leased assets that are easy to damage. 
B) Leased assets that require maintenance and care by the lessee. 
C) Having lease terms that cover small portions of the asset's useful life. 
D) Having an unguaranteed residual value by the lessee.

Question 12

For the following lease, determine the amount the ROU asset will be initially measured at. 
$\begin{array}{|l|l|}
\hline \begin{array}{l}
\text { Annual payment (due at commencement date of } \
\text { lease) }
\end{array} & \$ 23,000 \
\hline \text { Lease term } & 5 \
\hline \text { Incremental borrowing rate } & 10 \% \\hline \text { Implicit rate (readily determinable by lessee) } & 8 \% \
\hline \text { Unguaranteed residual value } & \text { NA } \
\hline \text { Guaranteed residual value } & 20,000 \
\hline \text { Expected payout under guarantee } & 14,000 \
\hline
\end{array}$

Accepted Answer

A) 93,792 
B) 103,792 
C) 107,794 
D) 108,759 
A) 93,792 
B) 103,792 
C) 107,794 
D) 108,759

Question 13

What are the advantages to the lessee of leasing an asset, rather than purchasing it?

Accepted Answer

1. "100%" financing of the asset's purch

Question 14

Under ASPE, which statement is correct for the lessee?

Accepted Answer

A) Using the higher of the incremental or implicit rate maximizes the present value of the minimum lease payment calculation. 
B) Using the lower of the incremental or implicit rate maximizes the present value of the minimum lease payment calculation. 
C) Using the incremental borrowing rate maximizes the minimum lease payment calculation. 
D) Using the implicit rate maximizes the minimum lease payment calculation. 
A) Using the higher of the incremental or implicit rate maximizes the present value of the minimum lease payment calculation. 
B) Using the lower of the incremental or implicit rate maximizes the present value of the minimum lease payment calculation. 
C) Using the incremental borrowing rate maximizes the minimum lease payment calculation. 
D) Using the implicit rate maximizes the minimum lease payment calculation.

Question 15

From the perspective of the lessor, which statement is correct respecting the criteria for determining whether a lease is an operating or a finance lease?

Accepted Answer

A) Substantially all of the risks and rewards of ownership have been transferred from the lessee to the lessor. 
B) There is a transfer of ownership to the lessee or a bargain purchase option (BPO)at the end of the lease. 
C) The lease term is a minor part of the economic life of the asset. 
D) The present value of the lease payments is greater than 50% fair value of the leased asset. 
A) Substantially all of the risks and rewards of ownership have been transferred from the lessee to the lessor. 
B) There is a transfer of ownership to the lessee or a bargain purchase option (BPO)at the end of the lease. 
C) The lease term is a minor part of the economic life of the asset. 
D) The present value of the lease payments is greater than 50% fair value of the leased asset.

Question 16

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

Accepted Answer

A) It is not included in the present value of the 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 a non-lease cost in the lease arrangement. 
A) It is not included in the present value of the 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 a non-lease cost in the lease arrangement.

Question 17

What entry is required for the lessor in a finance lease?

Accepted Answer

A) Net investment in lease. 
B) Rental income. 
C) Interest expense. 
D) Depreciation expense. 
A) Net investment in lease. 
B) Rental income. 
C) Interest expense. 
D) Depreciation expense.

Question 18

For the following lease, determine the amount the ROU asset will be initially measured at. 
$\begin{array}{|l|l|}
\hline \begin{array}{l}
\text { Annual payment (due at commencement date of } \
\text { lease) }
\end{array} & \$ 23,000 \
\hline \text { Lease term } & 5 \
\hline \text { Incremental borrowing rate } & 10 \% \\hline \text { Implicit rate (readily determinable by lessee) } & 8 \% \
\hline \text { Unguaranteed residual value } & \text { NA } \
\hline \text { Guaranteed residual value } & 20,000 \
\hline \text { Expected payout under guarantee } & 14,000 \
\hline
\end{array}$

Accepted Answer

A) 101,360 
B) 104,600 
C) 108,707 
D) 112,791 
A) 101,360 
B) 104,600 
C) 108,707 
D) 112,791

Question 19

Under ASPE, what is the meaning of "minimum lease payments"?

Accepted Answer

A) Payments over the lease term including non-lease costs. 
B) Payments over the lease term excluding non-lease costs. 
C) Payments over the lease term until the bargain purchase option is exercised. 
D) Payments over the lease term until guaranteed residual value is received. 
A) Payments over the lease term including non-lease costs. 
B) Payments over the lease term excluding non-lease costs. 
C) Payments over the lease term until the bargain purchase option is exercised. 
D) Payments over the lease term until guaranteed residual value is received.

Question 20

For the following lease, determine the amount the ROU asset will be initially measured at assuming that the company does not elect to use the practical expedient available to it. 
$\begin{array}{|l|l|}
\hline \begin{array}{l}
\text { Annual payment (due at end of } \
\text { year) }
\end{array} & \$ 22,000 \
\hline \text { Lease term } & 5 \
\hline \text { Incremental borrowing rate } & 10 \% \\hline \begin{array}{l}
\text { Implicit rate (not readily } \
\text { determinable by lessee) }
\end{array} & 8 \% \
\hline \begin{array}{l}
\text { Non-lease costs included in } \
\text { annual payment }
\end{array} & 5,000 \
\hline
\end{array}$

Accepted Answer

A) 64,443 
B) 67,876 
C) 83,397 
D) 87,840 
A) 64,443 
B) 67,876 
C) 83,397 
D) 87,840

List four factors that preclude the seller-lessee from recognizing a sale on a sale and leaseback transaction.

For the following lease, determine the amount the ROU asset will be initially measured at. Annual payment (due at end of year) \ 25,000 Lease term 5 Incremental borrowing rate 7\% Implicit rate (readily determinable by lessee) 6\% Non-lease costs included in annual payment 2,000

Under ASPE, which statement is correct for the lessee?

Which statement is true?

Under ASPE, assuming all information is available, which rate is used by the lessee in the lease present value calculations?

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

What is true respecting the economics behind leasing arrangements?

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

Which will decrease the "agency cost of leasing"?

What are the advantages to the lessee of leasing an asset, rather than purchasing it?

Under ASPE, which statement is correct for the lessee?

From the perspective of the lessor, which statement is correct respecting the criteria for determining whether a lease is an operating or a finance lease?

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

What entry is required for the lessor in a finance lease?

Under ASPE, what is the meaning of "minimum lease payments"?

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

List four factors that preclude the seller-lessee from recognizing a sale on a sale and leaseback transaction.

For the following lease, determine the amount the ROU asset will be initially measured at. Annual payment (due at end of year) \ 25,000 Lease term 5 Incremental borrowing rate 7\% Implicit rate (readily determinable by lessee) 6\% Non-lease costs included in annual payment 2,000

Under ASPE, which statement is correct for the lessee?

Which statement is true?

Under ASPE, assuming all information is available, which rate is used by the lessee in the lease present value calculations?

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

What is true respecting the economics behind leasing arrangements?

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

Which will decrease the "agency cost of leasing"?

What are the advantages to the lessee of leasing an asset, rather than purchasing it?

Under ASPE, which statement is correct for the lessee?

From the perspective of the lessor, which statement is correct respecting the criteria for determining whether a lease is an operating or a finance lease?

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

What entry is required for the lessor in a finance lease?

Under ASPE, what is the meaning of "minimum lease payments"?

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