Exam 7: Financial Assets: Cash and Receivables

On January 1,2014,WXY signed an operating lease agreement,which required $5,800 annual rentals to be paid at the end of each year.The accounting period ends December 31.At the end of 2014,WXY (lessee)should make the following entry:

(Multiple Choice)

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Question 221

LMO leased an asset for use in its factory.The lease specified that LMO was to make annual payments of $2,818 payable at the end of each year.The lessor classified the lease as a direct financing lease because LMO was allowed to lease the asset at cost of $14,000 (i.e.,the present value of the lease payments).The lessor received a 12 percent rate of return on the lease.The estimated residual value at the end of the lease term is zero.If the lease was classified as a finance lease by LMO,how much annual depreciation (using SL)should LMO record?

(Multiple Choice)

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Question 222

A lessee is attempting to circumvent the accounting rules,which require lease capitalization.Which of the following is most likely to lead to classification of a lease as an operating lease for the lessee?

(Multiple Choice)

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Question 223

Sales-type leases are essentially a selling tool used by manufacturers to sell their merchandise.

(True/False)

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Question 224

A company became a lessee by leasing equipment on January 1,2014 from a lessor.The lease has the following characteristics: Six end-of-year lease payments are due beginning The lease term ends December 31,2019 Assume this is a finance lease for both parties.What is the present value of minimum lease payments for the lessee?

(Multiple Choice)

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Question 225

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):

(Multiple Choice)

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Question 226

One of the most common methods of avoiding the capitalization of a lease is to enter into lease agreements that provide year-by-year renewal.

(True/False)

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Question 227

Showing 221 - 227 of 227

On January 1,2014,WXY signed an operating lease agreement,which required $5,800 annual rentals to be paid at the end of each year.The accounting period ends December 31.At the end of 2014,WXY (lessee)should make the following entry:

A lessee is attempting to circumvent the accounting rules,which require lease capitalization.Which of the following is most likely to lead to classification of a lease as an operating lease for the lessee?

Sales-type leases are essentially a selling tool used by manufacturers to sell their merchandise.

One of the most common methods of avoiding the capitalization of a lease is to enter into lease agreements that provide year-by-year renewal.

The Framework for Financial Reporting

Accounting Judgements

Statements of Income and Comprehensive Income

Statements of Financial Position and Changes in Equity; Disclosure Notes

The Statement of Cash Flows

Revenue Recognition

Cost-Based Inventories and Cost of Sales

Long-Lived Assets

Depreciation, Amortization, and Impairment

Financial Instruments: Investments in Bonds and Equity Securities

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