Exam 7: Financial Assets: Cash and Receivables

If a 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 $_____________________.

A finance lease signed on January 1,2014,calls for 5 annual lease payments of $40,000 starting January 1,2014.The asset reverts to the lessor on December 31,2018 at which time it is expected to be worth $25,000.The lessor's implicit interest rate is 10%.What is the market value of the asset at inception?

The lessee measures the cost of a leased asset,and the corresponding lease liability of a finance lease,as the:

What is the difference between the net method and gross method of accounting for leases by the lessor?

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

On the first day of its fiscal year,Lessor,Inc.,leased certain property at an annual rental of $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?

A finance lease is accounted for "as if" it transfers a material interest in the leased asset from the lessor to the lessee.

A lessee's insurance expense throughout the term of a finance lease is usually an estimate as opposed to an actual expense amount.

On January1st,2014,ABC Inc.(the lessor)agrees to lease a piece of specialized piece of machinery to DEF Inc.(the lessee)for 5 years.ABC Inc.is a financial intermediary specializing in leasing arrangements such as the one described below.Details are as follows: Fair value of machinery at inception of the lease: $100,000. Lease term: 5 years (no bargain renewal terms). Executory costs of $10,000 are reimbursed by the lessee. 5 Annual lease payments of $23,000 each are made on January 1^st of each year starting on January 1^st,2014. Bargain purchase option at end of lease: $5,000.It is estimated that the equipment will have a fair value of $10,000 at the end of the lease. Economic life of the asset is 10 years,after which the equipment will be worthless.Straight-line depreciation applies. ABC's implicit interest rate with respect to this lease is 10%.This is rate is known by DEF Inc. DEF Inc's incremental borrowing rate is 9%. Assuming that this qualifies as a finance lease,what would be the amount of DEF Inc's annual depreciation as per IFRS (rounded)?

A lessee capitalized a lease with a 1/1/x1 inception and which required annual lease payments of $5,000 to be paid each December 31 beginning 12/31/x1.The lessee is to pay an additional $200 each December 31 for maintenance and insurance for the year ending on that date.The last lease payment is due 12/31/x6,on which date the title to the asset transfers to the lessee.The asset is expected to be used by the lessee until 12/31/x9 at which time the asset will have no residual value.What is the total expense related to the lease recognized by the lessee in 20x4? Both lessor and lessee use 10%.

If the title to a leased asset does not transfer to the lessee at the end of the lease term,and no party guarantees the residual,what is the period and residual value used by the lessor to depreciate the leased asset?

Under a finance lease that includes a bargain purchase option (BPO),how is depreciation on the asset under lease recognized by:

When a non-refundable down payment on a leased asset is made in advance under an operating lease,at the payment date,the lessor credits:

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 be capitalized)?

Lessor Company rented a machine to Lessee Company on January 1,2014,for a period of 3 years.Rent of $8,000 is due January 1,of each year (starting in 2014).The lease qualified as an operating lease for both the lessor and lessee.In addition to the monthly rentals,the lease contract required Lessee Company to pay $2,000 on January 1,2014 (this is non-refundable).The accounting period ends December 31.Complete the entries required for Lessor Company on the following dates,using the straight line method. (a)January 1,2014: (b)December 31,2014:

On December 1,2014,XYZ leased office space for its own use for 10 years at a monthly rental of $15,000.On December 31,2014,XYZ paid the lessor the following amounts: The entire amount of $146,000 was reported as rent expense in 2014 because it is an operating lease.What amount should XYZ have reported as expense for the year ended December 31,2014?

To qualify as a lessor for tax purposes,a company must derive at least 90% of its revenues from leasing.

A lessor leased equipment to a lessee on January 1,2014.The lease has the following characteristics: Book value of the asset to the lessor: $100,000 Market value: $167,417 on that date. Lessor's implicit rate: 10% Lessee's borrowing rate: 12% Lessee knows the lessor's implicit rate. Five equal payments of $40,000 are due each January 1,beginning 2014 Lease term ends: December 31,2018 Remaining useful life of equipment at January 1,2014: 8 years (at the end of which time the equipment will have no residual value) Estimated residual value on December 31,2018: $30,000 Lessee has the option to buy the asset on December 31,2018 for $1,000. Assume there is no uncertainty as to payment of lease payments by lessee or unreimbursable costs for lessor. Assume straight-line depreciation or amortization. (a)Is this an operating or finance lease for the lessee,and why? (b)Prepare all the required journal entries for the lessor and lessee for 2014.

The same lease may be classified differently by the lessor as compared to the classification used by the lessee.

On January 1,2014,MU Corporation leased an asset,under an operating lease,to obtain the use of a special machine for three years.The lease payments were $9,000 per year payable at each year-end; the lessee must pay all operating expenses.At the inception date,MU Corporation should: