Question 1

The use of contingent lease payments is one method companies use to avoid lease capitalization.

Accepted Answer

A) True 
 B)False

Question 2

When a lessee measures the present value of future rentals to be capitalized under a finance lease, identifiable payments expected to be paid by the lessee to cover taxes, insurance, and maintenance should be:

Accepted Answer

A) included in the present value of the future rentals to be capitalized. 
B) capitalized, but at a different discount rate and reported in a different account than the present value of the future rental payments. 
C) excluded from the present value of the future rentals to be capitalized. 
D) capitalized, but at a different discount rate and for a relevant period that usually is different than for the future rental payments. 
A) included in the present value of the future rentals to be capitalized. 
B) capitalized, but at a different discount rate and reported in a different account than the present value of the future rental payments. 
C) excluded from the present value of the future rentals to be capitalized. 
D) capitalized, but at a different discount rate and for a relevant period that usually is different than for the future rental payments.

Question 3

One incentive for entering into sale-and-leaseback arrangements is:

Accepted Answer

A) lessee may be able to reduce finance expense through the refinancing aspects of the sale-leaseback. 
B) tax implications are favourable for the lessor. 
C) lessee wants to increase return on investment. 
D) lessor has an abundance of cash. 
E) improvement in cash flow for the lessor. 
A) lessee may be able to reduce finance expense through the refinancing aspects of the sale-leaseback. 
B) tax implications are favourable for the lessor. 
C) lessee wants to increase return on investment. 
D) lessor has an abundance of cash. 
E) improvement in cash flow for the lessor.

Question 4

If lessor has property that has a market value (cost if new)of $89,718 and leases it on a finance lease for 5 years and desires a 20% annual return (assuming an ordinary annuity situation annually), the annual rentals would be $ _.

Accepted Answer

$30,000, computed as

Question 5

Finance revenue is recognized on a finance lease because the leased asset is considered sold at the inception of the lease, and the lease is a way of financing the lease.

Accepted Answer

A) True 
 B)False

Question 6

Choose the correct statement regarding including the terms listed in the lessee's (1)minimum lease payments and (2)lease liability for a capitalized lease:

Accepted Answer

A) Choice 1 
B) Choice 2 
C) Choice 3 
D) Choice 4 
A) Choice 1 
B) Choice 2 
C) Choice 3 
D) Choice 4

Question 7

The treatment of gains and losses under Sale and Leaseback arrangements are identical under ASPE and IFRS.

Accepted Answer

A) True 
 B)False

Question 8

An asset with a market value of $100,000 is leased on 1/1/x0.Five annual lease payments are due each January 1 beginning 1/1/x0.The lessee guarantees the $40,000 residual value as of 12/31/x4, the last day of the lease term.The lessor's implicit interest rate is 8%.What is the annual lease payment?

Accepted Answer

A) $18,227 
B) $23,191 
C) $16,877 
D) $25,046 
A) $18,227 
B) $23,191 
C) $16,877 
D) $25,046

Question 9

On January 1, 2014, CDE Company leased an asset from LMN which originally cost the lessor $75,000.The lease agreement was an operating lease and specified that three $10,500 annual rentals were to be paid at the beginning of each year.LMN should make the following entry on January 1, 2014:

Accepted Answer

A) Please see the following table:
  
B) Please see the following table:
  
C) Please see the following table:
  
D) Please see the following table:
  
A) Please see the following table:
  
B) Please see the following table:
  
C) Please see the following table:
  
D) Please see the following table:

Question 10

The amount of each rental payment on a sales type lease is based on the:

Accepted Answer

A) cost of the asset plus interest. 
B) cost of the asset, profit, and interest. 
C) cost of the leased asset. 
D) cost of the asset plus profit. 
A) cost of the asset plus interest. 
B) cost of the asset, profit, and interest. 
C) cost of the leased asset. 
D) cost of the asset plus profit.

Question 11

A lessee's debt to equity ratio is not increased if the lease is a finance lease, whereas, it would be if the asset were purchased outright.

Accepted Answer

A) True 
 B)False

Question 12

What amount of sales is recognized by the lessor in a sales type lease when the residual value is guaranteed?

Accepted Answer

A) Market value of the asset leased. 
B) Cost of asset leased less present value of guaranteed residual value. 
C) Cost of asset leased. 
D) Market value of asset leased less present value of guaranteed residual value. 
A) Market value of the asset leased. 
B) Cost of asset leased less present value of guaranteed residual value. 
C) Cost of asset leased. 
D) Market value of asset leased less present value of guaranteed residual value.

Question 13

The straight-line method is frequently used to amortize non-refundable rental payments made in advance on leased assets because:

Accepted Answer

A) It is less complex, therefore, less costly. 
B) IFRS requires that it be used in all situations. 
C) It is more theoretically sound. 
D) The interest method may result in unreliable amounts being recognized as expense. 
A) It is less complex, therefore, less costly. 
B) IFRS requires that it be used in all situations. 
C) It is more theoretically sound. 
D) The interest method may result in unreliable amounts being recognized as expense.

Question 14

ABC INC.leased equipment to XYZ on January 1, 2013.The lease is for a 9-year period expiring January 1, 2022.The first equal annual payment of $400,000 was made on January 1, 2013.The cash selling price of the equipment is $2,347,500, which is equal to the present value of the lease payments at 10 percent.ABC INC.had purchased the equipment for $2,100,000.The lease is appropriately recorded as a sales-type lease by ABC INC.What amount of interest income should ABC INC.record in 2013 as a result of the lease?

Accepted Answer

A) $210,000 
B) $280,000 
C) $234,750 
D) $194,750 
A) $210,000 
B) $280,000 
C) $234,750 
D) $194,750

Question 15

Which of the following statements best describes the finance lease guidelines under ASPE from the lessee's point of view?

Accepted Answer

A) The present value of the minimum lease payments must be equal to 90% or more of the asset's fair value. 
B) The lease term must be at least 75% of the asset's life. 
C) The criteria for finance leases is met if either the lease term is at least 75% of the asset's life or the present value of the minimum lease payment is equal to 90% or more of the asset's fair value. 
D) The criteria for finance leases are met if the lease term is at least 75% of the asset's life AND the present value of the minimum lease payment is equal to 90% or more of the asset's fair value. 
A) The present value of the minimum lease payments must be equal to 90% or more of the asset's fair value. 
B) The lease term must be at least 75% of the asset's life. 
C) The criteria for finance leases is met if either the lease term is at least 75% of the asset's life or the present value of the minimum lease payment is equal to 90% or more of the asset's fair value. 
D) The criteria for finance leases are met if the lease term is at least 75% of the asset's life AND the present value of the minimum lease payment is equal to 90% or more of the asset's fair value.

Question 16

Under IFRS, the proceeds of any lease arrangement involving both a parcel of land and building are prorated according to the fair values of the respective leasehold rights of the assets.

Accepted Answer

A) True 
 B)False

Question 17

In order for a lessee to capitalize a lease, at least one of four criteria must be met.Answer the following questions about the third criterion, the one having to do with the useful life of the leased asset.
(a)State the criterion itself, specifically.
(b)Why does fulfilling this criterion imply a capitalized lease (i.e.why is this one of the criteria)?
(c)When is this criterion not applicable (i.e.when can it not be used to test whether a lease should b capitalized)?

Accepted Answer

(a)If the lease term is at least equal t

Question 18

When the lessee guarantees only a portion of the estimated residual value, the:

Accepted Answer

A) lessor's and lessee's accounting entries will be symmetrical. 
B) guaranteed portion is disregarded when computing the annual rentals. 
C) lessee only takes into account the guaranteed portion when computing depreciation expense. 
D) lessee will never have to compensate the lessor for the excess of the guaranteed amount over the actual residual value. 
A) lessor's and lessee's accounting entries will be symmetrical. 
B) guaranteed portion is disregarded when computing the annual rentals. 
C) lessee only takes into account the guaranteed portion when computing depreciation expense. 
D) lessee will never have to compensate the lessor for the excess of the guaranteed amount over the actual residual value.

Question 19

Under a sales-type lease, the lessor recognizes a dealer's or manufacturer's profit on the date of inception of the lease.

Accepted Answer

A) True 
 B)False

Question 20

What are the three types of period costs that a lessee experiences with finance leases?

Accepted Answer

A) Executory costs, finance expense, and lease expense. 
B) Depreciation expense, executory costs, and lease expense. 
C) Finance expense, depreciation expense, and executory costs. 
D) Lease expense, finance expense, and depreciation expense. 
A) Executory costs, finance expense, and lease expense. 
B) Depreciation expense, executory costs, and lease expense. 
C) Finance expense, depreciation expense, and executory costs. 
D) Lease expense, finance expense, and depreciation expense.

The use of contingent lease payments is one method companies use to avoid lease capitalization.

When a lessee measures the present value of future rentals to be capitalized under a finance lease, identifiable payments expected to be paid by the lessee to cover taxes, insurance, and maintenance should be:

One incentive for entering into sale-and-leaseback arrangements is:

If lessor has property that has a market value (cost if new)of $89,718 and leases it on a finance lease for 5 years and desires a 20% annual return (assuming an ordinary annuity situation annually), the annual rentals would be $ _.

Finance revenue is recognized on a finance lease because the leased asset is considered sold at the inception of the lease, and the lease is a way of financing the lease.

Choose the correct statement regarding including the terms listed in the lessee's (1)minimum lease payments and (2)lease liability for a capitalized lease:

The treatment of gains and losses under Sale and Leaseback arrangements are identical under ASPE and IFRS.

An asset with a market value of $100,000 is leased on 1/1/x0.Five annual lease payments are due each January 1 beginning 1/1/x0.The lessee guarantees the $40,000 residual value as of 12/31/x4, the last day of the lease term.The lessor's implicit interest rate is 8%.What is the annual lease payment?

On January 1, 2014, CDE Company leased an asset from LMN which originally cost the lessor $75,000.The lease agreement was an operating lease and specified that three $10,500 annual rentals were to be paid at the beginning of each year.LMN should make the following entry on January 1, 2014:

The amount of each rental payment on a sales type lease is based on the:

A lessee's debt to equity ratio is not increased if the lease is a finance lease, whereas, it would be if the asset were purchased outright.

What amount of sales is recognized by the lessor in a sales type lease when the residual value is guaranteed?

The straight-line method is frequently used to amortize non-refundable rental payments made in advance on leased assets because:

Which of the following statements best describes the finance lease guidelines under ASPE from the lessee's point of view?

Under IFRS, the proceeds of any lease arrangement involving both a parcel of land and building are prorated according to the fair values of the respective leasehold rights of the assets.

When the lessee guarantees only a portion of the estimated residual value, the:

Under a sales-type lease, the lessor recognizes a dealer's or manufacturer's profit on the date of inception of the lease.

What are the three types of period costs that a lessee experiences with finance leases?

Financial Liabilities and Provisions

Financial Instruments: Long-Term Debt

Shareholders Equity

Financial Instruments: Complex Debt and Equity

Corporate Income Tax

Tax Losses

Post-Employment Benefits

Earnings Per Share

Accounting Changes

Financial Statement Analysis

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Exam 18: Leases

The use of contingent lease payments is one method companies use to avoid lease capitalization.

When a lessee measures the present value of future rentals to be capitalized under a finance lease, identifiable payments expected to be paid by the lessee to cover taxes, insurance, and maintenance should be:

One incentive for entering into sale-and-leaseback arrangements is:

If lessor has property that has a market value (cost if new)of $89,718 and leases it on a finance lease for 5 years and desires a 20% annual return (assuming an ordinary annuity situation annually), the annual rentals would be $ _.

Finance revenue is recognized on a finance lease because the leased asset is considered sold at the inception of the lease, and the lease is a way of financing the lease.

Choose the correct statement regarding including the terms listed in the lessee's (1)minimum lease payments and (2)lease liability for a capitalized lease:

The treatment of gains and losses under Sale and Leaseback arrangements are identical under ASPE and IFRS.

An asset with a market value of $100,000 is leased on 1/1/x0.Five annual lease payments are due each January 1 beginning 1/1/x0.The lessee guarantees the $40,000 residual value as of 12/31/x4, the last day of the lease term.The lessor's implicit interest rate is 8%.What is the annual lease payment?

On January 1, 2014, CDE Company leased an asset from LMN which originally cost the lessor $75,000.The lease agreement was an operating lease and specified that three $10,500 annual rentals were to be paid at the beginning of each year.LMN should make the following entry on January 1, 2014:

The amount of each rental payment on a sales type lease is based on the:

A lessee's debt to equity ratio is not increased if the lease is a finance lease, whereas, it would be if the asset were purchased outright.

What amount of sales is recognized by the lessor in a sales type lease when the residual value is guaranteed?

The straight-line method is frequently used to amortize non-refundable rental payments made in advance on leased assets because:

Which of the following statements best describes the finance lease guidelines under ASPE from the lessee's point of view?

Under IFRS, the proceeds of any lease arrangement involving both a parcel of land and building are prorated according to the fair values of the respective leasehold rights of the assets.

When the lessee guarantees only a portion of the estimated residual value, the:

Under a sales-type lease, the lessor recognizes a dealer's or manufacturer's profit on the date of inception of the lease.

What are the three types of period costs that a lessee experiences with finance leases?

Financial Liabilities and Provisions

Financial Instruments: Long-Term Debt

Shareholders Equity

Financial Instruments: Complex Debt and Equity

Corporate Income Tax

Tax Losses

Post-Employment Benefits

Earnings Per Share

Accounting Changes

Financial Statement Analysis

Filters