Question 1

Which statement is true?

Accepted Answer

A) The guaranteed residual value is provided by the lessor. 
B) The bargain purchase option is not a part of the minimum lease payment calculation. 
C) The incremental borrowing rate is the interest rate that the lessor would have to pay on a similar lease or loan. 
D) One of the risks of ownership is the risk of obsolescence. 
A) The guaranteed residual value is provided by the lessor. 
B) The bargain purchase option is not a part of the minimum lease payment calculation. 
C) The incremental borrowing rate is the interest rate that the lessor would have to pay on a similar lease or loan. 
D) One of the risks of ownership is the risk of obsolescence.

Question 2

On January 1,2017,Pelvisee Company entered a lease to rent office space.The lease requires Pelvisee to pay $390,000 per year,at the beginning of each year,for 15 years.The lease is non-cancellable and non-renewable.The building's estimated useful life is 30 years,and its current fair value is estimated to be $6 million.Pelvisee's incremental borrowing rate is 9%.
Required:
Classify this lease for Pelvisee Company and record the journal entries for the first year of the lease.

Accepted Answer

This is an operating lease because it do

Question 3

The following are some of the characteristics of an asset available for lease:
   
Required:
a.Determine the amount of lease payment that the lessor would require to lease the asset.
b.Compute the present value of minimum lease payments for the lessee.
c.Compute the present value of minimum lease payments for the lessor.
d.Evaluate whether the lessee should classify the lease as operating or capital lease using the quantitative guidelines in ASPE.

Accepted Answer

a.Computation of required lease payments

Question 4

In general,which statement is correct?

Accepted Answer

A) Lessees prefer finance leases. 
B) Lessees prefer operating leases. 
C) Operating leases are more favourable to the lessor in the short term. 
D) Finance leases are more favourable to the lessee in the short term. 
A) Lessees prefer finance leases. 
B) Lessees prefer operating leases. 
C) Operating leases are more favourable to the lessor in the short term. 
D) Finance leases are more favourable to the lessee in the short term.

Question 5

Complete this table identifying the key differences between IFRS and ASPE standards for leasing.
 $$\begin{array} { | l | l | l |} 
\hline { \text { ISSUE } } & \text { IFRS } & \text { ASPE } \
\hline \text { Lease capitalization criteria-lessee } & & \
\hline \text { Lease capitalization criteria-lessor } & & \
\hline \text { Lessor's classification of finance (capital) leases } & & \
\hline \text { Lessee's discount rate for present value calculations } & & \
\hline
\end{array}$$

Accepted Answer

The answer of Complete this table identifying the key differences...

Question 6

What is the general criterion for deciding whether a lease is an operating or a finance lease?

Accepted Answer

a)substantially all of the risks and rew

Question 7

Kartik Corporation started operations on March 1,2017.It needs to acquire a special piece of equipment for its manufacturing operations.It is evaluating two options as follows.
Option 1: Lease the equipment for 5 years.Lease payments would be $12,000 per year,due at the beginning of each fiscal year (March 1).Kartik's incremental borrowing rate is 5%.There is no bargain purchase or renewal option.Kartik is responsible for all executory costs of operating the equipment.
Option 2: Purchase the equipment for $58,000 by borrowing the full purchase amount at 4% over 5 years.This price is considered the fair value of the equipment.Payments are due at the end of each fiscal year (February 28).
The equipment has a useful life of 5 years and would be depreciated on a straight-line basis.No residual value is expected to exist at the end of 5 years.
Required:
a.Calculate the present value of the lease payments (Option 1).
b.Calculate the payment that would be required under the purchase option (Option 2).
c.Calculate and briefly discuss the financial impact of each option on the non-current assets,total liabilities,and net income of Kartik for the first year of operations.Assume all payments were made when due.Show your calculations.

Accepted Answer

a.Present value of lease:
 @#IMG-DLM& 
b.Loan paym

Question 8

What is true respecting the economics behind leasing arrangements?

Accepted Answer

A) By agreeing to provide a guarantee that the leased property will be worth at least a certain amount,the lessor assures the lessee that the property will be treated with due care. 
B) A guaranteed residual value means that the lessee bears the risk and cost of the property falling below the specified value of the guarantee. 
C) Since the lessor is assured of receiving the guaranteed amount (or more),the guaranteed residual value does not form part of the minimum lease payment. 
D) The bargain purchase option (BPO)is not part of the minimum lease payment even though a BPO is almost certain to be exercised. 
A) By agreeing to provide a guarantee that the leased property will be worth at least a certain amount,the lessor assures the lessee that the property will be treated with due care. 
B) A guaranteed residual value means that the lessee bears the risk and cost of the property falling below the specified value of the guarantee. 
C) Since the lessor is assured of receiving the guaranteed amount (or more),the guaranteed residual value does not form part of the minimum lease payment. 
D) The bargain purchase option (BPO)is not part of the minimum lease payment even though a BPO is almost certain to be exercised.

Question 9

Which statement is correct about the bargain purchase option (BPO)?

Accepted Answer

A) It is cash that the lessee will receive at the end of the lease. 
B) It cannot be assumed that the BPO will be exercised. 
C) It is excluded in the minimum lease payment calculation. 
D) It means that it is almost certain that ownership will transfer to the lessee. 
A) It is cash that the lessee will receive at the end of the lease. 
B) It cannot be assumed that the BPO will be exercised. 
C) It is excluded in the minimum lease payment calculation. 
D) It means that it is almost certain that ownership will transfer to the lessee.

Question 10

For the following lease,determine the minimum present value calculation for the lessor.
$$\begin{array} { | l | l | } 
\hline \text { Annual payment (due at end of year) } & \$ 22,000 \
\hline \text { Lease term } & 5 \
\hline \text { Incremental rate } & 10 \% \
\hline \text { Implicit rate (unknown to lessee) } & 8 \% \
\hline \text { Executory costs } & 5,000 \
\hline
\end{array}$$

Accepted Answer

A) 67,548 
B) 67,876 
C) 86,502 
D) 91,243 
A) 67,548 
B) 67,876 
C) 86,502 
D) 91,243

Question 11

Which statement is correct for the lessee?

Accepted Answer

A) Using the higher of the incremental or implicit rate maximizes the present value of the minimum lease payment calculation. 
B) Using the lower of the incremental or implicit rate maximizes the present value of the minimum lease payment calculation. 
C) Using the incremental rate maximizes the minimum lease payment calculation. 
D) Using the implicit rate maximizes the minimum lease payment calculation. 
A) Using the higher of the incremental or implicit rate maximizes the present value of the minimum lease payment calculation. 
B) Using the lower of the incremental or implicit rate maximizes the present value of the minimum lease payment calculation. 
C) Using the incremental rate maximizes the minimum lease payment calculation. 
D) Using the implicit rate maximizes the minimum lease payment calculation.

Question 12

Zarlon Leasing Company agrees on January 1,2017 to rent Killington Winery the equipment that Killington requires to expand its production capacity to meet customers' demands for its products.The lease agreement calls for five annual lease payments of $11 0,000 at the end of each year.Killington has identified this as a finance lease.Furthermore,the company has determined that the present value of the lease payments,discounted at 4%,is $489,700.The leased equipment has an estimated useful life of five years and no residual value.Killington uses the straight-line method for depreciating similar equipment that it owns.
Required:
a.Prepare a lease amortization schedule for this lease.
b.Prepare the necessary journal entries for the first year of the lease.

Accepted Answer

a.Lease amortization

Question 13

For the following lease,determine the minimum present value calculation for the lessor.
$$\begin{array} { | l | l | } 
\hline \text { Annual payment (due at end of year) } & \$ 30,000 \
\hline \text { Lease term } & 5 \
\hline \text { Incremental rate } & 10 \% \
\hline \text { Implicit rate (unknown to lessee) } & 8 \% \
\hline \text { Unguaranteed residual value } & 28,000 \
\hline
\end{array}$$

Accepted Answer

A) 113,723 
B) 119,781 
C) 131,109 
D) 138,838 
A) 113,723 
B) 119,781 
C) 131,109 
D) 138,838

Question 14

The following amortization schedule is for a lease entered into at the start of fiscal 2017 for an asset that will be useful for 5 years.The company uses straight-line depreciation method.
   
Required:
Provide the appropriate presentation of this lease in the lessee's balance sheet for December 31,2019,distinguishing amounts that are current from those that are non-current.

Accepted Answer

Balance sheet presentation for December

Question 15

On July 1,2016,Jupiter Company leased equipment to Planet Company.The terms of the lease are as follows:
   
Planet uses straight-line depreciation for its property,plant,and equipment,and its year -end is December 31.
Required:
Prepare the journal entries for the lease from July 1 through December 31,2016.

Accepted Answer

First compute the value of the lease usi

Question 16

Which statement is correct for the lessee?

Accepted Answer

A) If the minimum lease payments exceed fair value of the leased asset,the asset will be recorded on the balance sheet at the higher amount. 
B) If the minimum lease payments exceed fair value of the leased asset,the asset will be recorded on the balance sheet at the fair value amount. 
C) If the minimum lease payments are lower that the fair value of the leased asset,the asset will be recorded on the balance sheet at the unguaranteed residual value amount. 
D) If the minimum lease payments are lower that the fair value of the leased asset,the implicit rate must be used. 
A) If the minimum lease payments exceed fair value of the leased asset,the asset will be recorded on the balance sheet at the higher amount. 
B) If the minimum lease payments exceed fair value of the leased asset,the asset will be recorded on the balance sheet at the fair value amount. 
C) If the minimum lease payments are lower that the fair value of the leased asset,the asset will be recorded on the balance sheet at the unguaranteed residual value amount. 
D) If the minimum lease payments are lower that the fair value of the leased asset,the implicit rate must be used.

Question 17

Which statement is correct about "agency cost of leasing"?

Accepted Answer

A) Conditions can be added to the lease agreement to increase agency costs. 
B) Agency costs are nil if the lease contract covers the entire useful life of the asset. 
C) Assets that are easy to damage are better candidates for leasing. 
D) Assets that are difficult to damage have higher agency costs. 
A) Conditions can be added to the lease agreement to increase agency costs. 
B) Agency costs are nil if the lease contract covers the entire useful life of the asset. 
C) Assets that are easy to damage are better candidates for leasing. 
D) Assets that are difficult to damage have higher agency costs.

Question 18

The following are characteristics of a lease:
   
Required:
Determine the appropriate classification for this lease for the lessor (who is not the manufacturer)and record the journal entries for the lessor for the first year of the lease.

Accepted Answer

@#IMG-DLM& 
The present value of MLP is 99.7% of t

Question 19

Why do the supporting indicators for lease classification use "major part" and "sub- stantially all" rather than "all" in reference to the amount of time and value contained in the lease?

Accepted Answer

The supporting indicators use wording th

Question 20

Which factor would contribute toward the lessor classifying a lease as a financial lease?

Accepted Answer

A) Lessor retains risk of breakage to leased asset. 
B) Lessor has reward of high resale value. 
C) Lessor does not have risk of change in demand for the leased asset. 
D) Lessor does not have guaranteed residual value. 
A) Lessor retains risk of breakage to leased asset. 
B) Lessor has reward of high resale value. 
C) Lessor does not have risk of change in demand for the leased asset. 
D) Lessor does not have guaranteed residual value.

Which statement is true?

In general,which statement is correct?

Complete this table identifying the key differences between IFRS and ASPE standards for leasing. ISSUE IFRS ASPE Lease capitalization criteria-lessee Lease capitalization criteria-lessor Lessor's classification of finance (capital) leases Lessee's discount rate for present value calculations

What is the general criterion for deciding whether a lease is an operating or a finance lease?

What is true respecting the economics behind leasing arrangements?

Which statement is correct about the bargain purchase option (BPO)?

For the following lease,determine the minimum present value calculation for the lessor. Annual payment (due at end of year) \ 22,000 Lease term 5 Incremental rate 10\% Implicit rate (unknown to lessee) 8\% Executory costs 5,000

Which statement is correct for the lessee?

For the following lease,determine the minimum present value calculation for the lessor. Annual payment (due at end of year) \ 30,000 Lease term 5 Incremental rate 10\% Implicit rate (unknown to lessee) 8\% Unguaranteed residual value 28,000

Which statement is correct for the lessee?

Which statement is correct about "agency cost of leasing"?

The following are characteristics of a lease: Required: Determine the appropriate classification for this lease for the lessor (who is not the manufacturer)and record the journal entries for the lessor for the first year of the lease.

Why do the supporting indicators for lease classification use "major part" and "sub- stantially all" rather than "all" in reference to the amount of time and value contained in the lease?

Which factor would contribute toward the lessor classifying a lease as a financial lease?

Current Liabilities and Contingencies

Non-Current Financial Liabilities

Equities

Complex Financial Instruments

Earnings Per Share

Accounting for Income Taxes

Pensions and Other Employee Future Benefits

Statement of Cash Flows

Accounting Changes

Filters

Exam 18: Accounting for Leases

Which statement is true?

In general,which statement is correct?

Complete this table identifying the key differences between IFRS and ASPE standards for leasing. ISSUE IFRS ASPE Lease capitalization criteria-lessee Lease capitalization criteria-lessor Lessor's classification of finance (capital) leases Lessee's discount rate for present value calculations

What is the general criterion for deciding whether a lease is an operating or a finance lease?

What is true respecting the economics behind leasing arrangements?

Which statement is correct about the bargain purchase option (BPO)?

For the following lease,determine the minimum present value calculation for the lessor. Annual payment (due at end of year) \ 22,000 Lease term 5 Incremental rate 10\% Implicit rate (unknown to lessee) 8\% Executory costs 5,000

Which statement is correct for the lessee?

For the following lease,determine the minimum present value calculation for the lessor. Annual payment (due at end of year) \ 30,000 Lease term 5 Incremental rate 10\% Implicit rate (unknown to lessee) 8\% Unguaranteed residual value 28,000

Which statement is correct for the lessee?

Which statement is correct about "agency cost of leasing"?

The following are characteristics of a lease: Required: Determine the appropriate classification for this lease for the lessor (who is not the manufacturer)and record the journal entries for the lessor for the first year of the lease.

Why do the supporting indicators for lease classification use "major part" and "sub- stantially all" rather than "all" in reference to the amount of time and value contained in the lease?

Which factor would contribute toward the lessor classifying a lease as a financial lease?

Current Liabilities and Contingencies

Non-Current Financial Liabilities

Equities

Complex Financial Instruments

Earnings Per Share

Accounting for Income Taxes

Pensions and Other Employee Future Benefits

Statement of Cash Flows

Accounting Changes

Filters