Question 1

The appropriate valuation of an operating lease on the balance sheet of a lessee is:

Accepted Answer

A)  the present value of the sum of the lease payments discounted at an appropriate rate. 
B)  the market value of the asset at the date of the inception of the lease. 
C)  the absolute sum of the lease payments. 
D)  zero unless the lessee made a prepayment of rent. 
A)  the present value of the sum of the lease payments discounted at an appropriate rate. 
B)  the market value of the asset at the date of the inception of the lease. 
C)  the absolute sum of the lease payments. 
D)  zero unless the lessee made a prepayment of rent.

Question 2

The lessor recognizes a profit at the inception of the lease when the lease is classified as a(n):

Accepted Answer

A)  operating lease. 
B)  non-finance lease. 
C)  direct financing lease. 
D)  sales-type lease. 
A)  operating lease. 
B)  non-finance lease. 
C)  direct financing lease. 
D)  sales-type lease.

Question 3

Non-refundable payments made in advance on operating leases may be amortized either over the term of the lease,or any other period consistent with the GAAP guidelines for amortizing intangible assets.

Accepted Answer

A) True 
 B)False

Question 4

RST entered into a direct financing lease with ZAB,which called for seven annual rentals of $3,500 (interest rate 12 percent)to be paid at the end of each year.The lease also contained a bargain purchase option allowing ZAB to purchase the asset for $2,500 after making the seventh annual rental payment.The cost of the asset must have been:

Accepted Answer

A)  $17,105 
B)  $18,473 
C)  $25,631 
D)  $27,000 
A)  $17,105 
B)  $18,473 
C)  $25,631 
D)  $27,000

Question 5

The principal attribute of finance leases is that the risks and rewards of asset ownership are deemed to remain with the lessor.

Accepted Answer

A) True 
 B)False

Question 6

The definition of an operating lease is essentially a lease wherein the criteria for finance lease classification have not been met.

Accepted Answer

A) True 
 B)False

Question 7

JMR Company leases an asset from KAR Company.The rate implicit in the lease is 12% and JMR's incremental borrowing rate is 11%.JMR is aware of the implicit rate.Assuming that both rates would provide an MLP amount well below the fair value of the leased asset,the rate that KAR should use for discounting the net lease payment is:

Accepted Answer

A)  11% under both ASPE and IFRS. 
B)  12% under ASPE and 11% under IFRS. 
C)  11% under ASPE and 12% under IFRS. 
D)  12% under both ASPE and IFRS. 
A)  11% under both ASPE and IFRS. 
B)  12% under ASPE and 11% under IFRS. 
C)  11% under ASPE and 12% under IFRS. 
D)  12% under both ASPE and IFRS.

Question 8

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 1st of each year starting on January 1st,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 ASPE (rounded)?

Accepted Answer

A)  $10,000 
B)  $10,076 
C)  $9,901 
D)  $5,000 
A)  $10,000 
B)  $10,076 
C)  $9,901 
D)  $5,000

Question 9

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

Accepted Answer

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

Question 10

A finance lease is based upon the view that there was a sale/purchase (between the parties)of the leased asset at the inception date of the lease.

Accepted Answer

A) True 
 B)False

Question 11

LXR leased to LXE a computer that cost the lessor $15,000.The explicit interest rate is 15%; rentals are paid at each year-end; and the lease term is 3 years.Residual value at the end of the lease term is $3,000.Assume this is a direct financing lease.
Requirement 1: LXE retains the computer at the end of the lease term at a BPO cost of $2,000.
(a)The rental amount computed by lessor is,$___________________.
(b)The amount the lessee should capitalize is,$________________.
Requirement 2: How much interest should be recognized at the end of year 1,in the above situation,by the:
(a)lessor? $__________________
(b)lessee? $________________.
Requirement 3: At the end of year 1,in the above situation,how much would the principal be reduced for the
(a)lessor's lease receivable? $_____________________ and
(b)lessee's lease liability? $_________________________.

Accepted Answer

Requirement 1: @#IMG-DLM& 
Check: @#IMG-DLM& 
Requ

Question 12

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 13

Geisler Company leased a building from Ryan Company for 5 years.The first year of the lease was forgiven with payments beginning in the second year.No journal entry is required until the second year.

Accepted Answer

A) True 
 B)False

Question 14

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 1st of each year starting on January 1st,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,at what amount would DEF Inc.capitalize the leased machinery at the inception of the lease as per IFRS (rounded)?

Accepted Answer

A)  $100,000 
B)  $100,763 
C)  $99,012 
D)  $95,907 
A)  $100,000 
B)  $100,763 
C)  $99,012 
D)  $95,907

Question 15

Why is the gross method used by the lessor in most cases instead of the net method if both produce the same results?

Accepted Answer

In accounting the reconciliation of acco

Question 16

Both guaranteed and unguaranteed residual values should be included in the calculation of the lessee's minimum lease payments of the lessee.

Accepted Answer

A) True 
 B)False

Question 17

CDE leased equipment from HIJ on December 31,2014,for a 10-year period (also the useful life of the asset).Equal annual payments under the lease are $50,000 and are due on December 31 of each year.The first payment was made on December 31,2014,and the second payment was made on the next due date.The present value at December 31,2014,of the minimum lease payments over the lease term discounted at 10 percent (the implicit rate computed by HIJ and known by CDE)was $338,000.CDE's incremental borrowing rate was 12 percent at December 31,2014.The lease is appropriately accounted for as a finance lease by CDE.What should be the balance in CDE's liability under finance lease account at December 31,2015?

Accepted Answer

A)  $266,800 
B)  $272,560 
C)  $303,980 
D)  $400,000 
A)  $266,800 
B)  $272,560 
C)  $303,980 
D)  $400,000

Question 18

With respect to a lessor's indirect costs,under ASPE:

Accepted Answer

A)  These should be expensed for both direct financing and sales-type leases. 
B)  These should be capitalized for both direct financing and sales-type leases. 
C)  These should be expensed under direct financing leases and capitalized under sales-type leases. 
D)  These should be capitalized under direct financing leases and expensed under sales-type leases. 
A)  These should be expensed for both direct financing and sales-type leases. 
B)  These should be capitalized for both direct financing and sales-type leases. 
C)  These should be expensed under direct financing leases and capitalized under sales-type leases. 
D)  These should be capitalized under direct financing leases and expensed under sales-type leases.

Question 19

Each periodic rent collected on a finance lease by the lessor is usually part principal and part interest revenue.

Accepted Answer

A) True 
 B)False

Question 20

The lessee should use the lessor's borrowing rate (if known)to account for a finance lease,even if this provides a present value of lease payments that is higher than the fair value of the asset at the inception of the lease.

Accepted Answer

A) True 
 B)False

The appropriate valuation of an operating lease on the balance sheet of a lessee is:

The lessor recognizes a profit at the inception of the lease when the lease is classified as a(n):

Non-refundable payments made in advance on operating leases may be amortized either over the term of the lease,or any other period consistent with the GAAP guidelines for amortizing intangible assets.

The principal attribute of finance leases is that the risks and rewards of asset ownership are deemed to remain with the lessor.

The definition of an operating lease is essentially a lease wherein the criteria for finance lease classification have not been met.

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

A finance lease is based upon the view that there was a sale/purchase (between the parties)of the leased asset at the inception date of the lease.

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.

Geisler Company leased a building from Ryan Company for 5 years.The first year of the lease was forgiven with payments beginning in the second year.No journal entry is required until the second year.

Why is the gross method used by the lessor in most cases instead of the net method if both produce the same results?

Both guaranteed and unguaranteed residual values should be included in the calculation of the lessee's minimum lease payments of the lessee.

With respect to a lessor's indirect costs,under ASPE:

Each periodic rent collected on a finance lease by the lessor is usually part principal and part interest revenue.

The lessee should use the lessor's borrowing rate (if known)to account for a finance lease,even if this provides a present value of lease payments that is higher than the fair value of the asset at the inception of the lease.

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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Exam 7: Financial Assets: Cash and Receivables

The appropriate valuation of an operating lease on the balance sheet of a lessee is:

The lessor recognizes a profit at the inception of the lease when the lease is classified as a(n):

Non-refundable payments made in advance on operating leases may be amortized either over the term of the lease,or any other period consistent with the GAAP guidelines for amortizing intangible assets.

The principal attribute of finance leases is that the risks and rewards of asset ownership are deemed to remain with the lessor.

The definition of an operating lease is essentially a lease wherein the criteria for finance lease classification have not been met.

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

A finance lease is based upon the view that there was a sale/purchase (between the parties)of the leased asset at the inception date of the lease.

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.

Geisler Company leased a building from Ryan Company for 5 years.The first year of the lease was forgiven with payments beginning in the second year.No journal entry is required until the second year.

Why is the gross method used by the lessor in most cases instead of the net method if both produce the same results?

Both guaranteed and unguaranteed residual values should be included in the calculation of the lessee's minimum lease payments of the lessee.

With respect to a lessor's indirect costs,under ASPE:

Each periodic rent collected on a finance lease by the lessor is usually part principal and part interest revenue.

The lessee should use the lessor's borrowing rate (if known)to account for a finance lease,even if this provides a present value of lease payments that is higher than the fair value of the asset at the inception of the lease.

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

Filters