Exam 18: Leases

LMN leases construction equipment on sales-type leases.LMN wants to record a $7,000 dealer's profit on assets leased, each of which cost $60,000.What annual year-end rentals should LMN quote to earn a 12 percent return on 8-year leases?

The depreciation period used by the lessee for a depreciable leased asset must be:

Both the lessee's interest and depreciation expense should be added back to net income to calculate cash flows from operating activities under the indirect method.

Lease Y contains a bargain purchase option and the lease term is equal to 75 percent of th estimated economic life of the leased property.Lease Z contains a bargain purchase optio and the lease term is less than 75 percent of the estimated economic life of the leased property.How would the lessee classify these leases?

WXZ entered into a direct financing lease with TUV for the use of an asset which cost WXZ $240,000.The lease agreement contained a bargain purchase option effective immediately after the fifth rental, which provided that TUV could purchase the asset at that time.The estimated life of the asset was 10 years with an estimated residual value of $400.TUV's annual depreciation expense is (use straight- line):

Which interest rate must be used by the lessee to account for a finance lease under ASPE?

Explain what a temporary difference is and how it arises?

What is the interest rate used for discounting the net lease payments by the lessor?

Ryan Corp.enters into an agreement with Montgomery Corp.to lease some office space in a very popular part of town.The agreement called for payments of $100,000 per year for five years and an upfront payment of $85,000.Explain the proper accounting treatment for the above situation.

XYZ Rental leased a special crane to ABC INC.that originally cost $40,000.The lease was for six years and the rentals were $10,000 per year, payable at each year-end.The implicit interest rate was 10 percent.XYZ Rental recognized a gross margin (dealer's profit)of (rounded to nearest dollar):

A journal entry is not required for either the lessor or lessee when an operating lease is initiated unless there is an advance payment, such as a lease bonus or prepayment of rent in addition to the periodic rents.

A lessor and lessee enter into a lease agreement with the following characteristics: Inception: 1/1/x0 6 annual lease payments of $10,000 are due each Jan.1 beginning 1/1/x0 Assuming the lessee will capitalize this lease, what is the amount of the net lease liability inception, before the first payment is made?

While only certain leases are currently accounted for as a sale or purchase, there is theoretical justification for considering all leases to be sales or purchases.The principle reason that supports this idea is that:

On December 31, 2015, JKL leased a new machine from MNO.The following information relates to the lease transaction: * the machine has an estimated useful life of seven years, which coincides with the lease term. * lease rentals consist of seven equal annual payments of $100,000, the first of which was paid on December 31, 2015. * MNO's implicit interest rate is 12 percent, which is known by JKL. * JKL's incremental borrowing rate is 14 percent at December 31, 2015. * present value of an annuity of $1 in advance for seven periods at 12 percent is 5.11. * present value of an annuity of $1 in advance for seven periods at 14 percent is 4.89. At the inception of the lease, JKL should record a capitalized lease liability of (choose the amount closest to your answer):

Under ASPE, the lessor is required to expense any direct costs associated with a lease up front.

On January 1, 2014, TA acquired a machine (for leasing purposes)for $52,000 cash.The machine had an estimated eight-year useful life and no residual value.On January 1, 2014, the machine was leased to LTB on an eight-year direct financing lease that required year-end annual rentals of $9,395 starting on December 31, 2014.The lessor's implicit interest rate was (rounded to the nearest percent)%.

On the first day of its fiscal year, Lessor, Inc., leased certain property at an annual rental o $100,000 receivable at the beginning of each year for ten years.The first payment was received immediately.The leased property, which is new, had cost $650,000 and has an estimated useful life of thirteen years and no salvage value. Lessor's borrowing rate is 8 percent.The present value of an annuity of $1 payable at the beginning of the period at 8 percent for ten years is 7.247.Lessor had no other costs associated with this lease.Lessor should have accounted for this lease as a sales-type lease, but it mistakenly treated the lease as an operating lease.What was the effect on net earnings during the first year of the lease by having treated this lease as an operating lease rather than as a sales-type lease?

This question relates to the different types of finance leases.To the left are listed eight different item related to such leases.To the right are three columns that identify the types of leases.Place one or tw check marks on each line to identify the item with the type of lease to which it primarily relates.

Initial direct costs are: