Question 1

Which of the following is true regarding the lease term?

Accepted Answer

A)  The lease term does not include all periods covered by bargain renewal options. 
B)  The lease term includes all periods for which failure to renew imposes a penalty sufficiently high that the lessee probably will renew. 
C)  The lease term may extend beyond the date a bargain purchase option becomes exercisable. 
D)  The lease term does not include all periods representing renewals or extensions of the lease at the lessor's option. 
A)  The lease term does not include all periods covered by bargain renewal options. 
B)  The lease term includes all periods for which failure to renew imposes a penalty sufficiently high that the lessee probably will renew. 
C)  The lease term may extend beyond the date a bargain purchase option becomes exercisable. 
D)  The lease term does not include all periods representing renewals or extensions of the lease at the lessor's option.

Question 2

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

Accepted Answer

A)  Interest expense,amortization expense,executory costs 
B)  Amortization expense,executory costs,lease expense 
C)  Executory costs,interest expense,lease expense 
D)  Lease expense,executory costs,initial costs 
A)  Interest expense,amortization expense,executory costs 
B)  Amortization expense,executory costs,lease expense 
C)  Executory costs,interest expense,lease expense 
D)  Lease expense,executory costs,initial costs

Question 3

Equal monthly rental payments for a particular lease should be charged to Rental Expense by the lessee for which of the following? Capital Lease Operating Lease

Accepted Answer

A)  Yes No 
B)  Yes Yes 
C)  No No 
D)  No Yes 
A)  Yes No 
B)  Yes Yes 
C)  No No 
D)  No Yes

Question 4

On January 1,2014,J.M.Rodriguez,owner of JMR Sound,sold the building the studio currently occupies to Rave Up Events Company for the current market value of the building of $9,000,000.Prior to the sale,the carrying value of the building was $7,000,000.The estimated remaining useful life of the building is 10 years,with no residual value at that time.Straight-line depreciation is used to depreciate the building.
On the same day as the sale,January 1,2014,Rodriguez signed a 10-year noncancelable leaseback agreement that has a 15 percent implicit rate of return for the lessor.The lessee's incremental borrowing rate also is 15 percent.Annual payments begin on January 1,2014.During 2014,Rodriguez will pay $10,000 executory costs if the transaction qualifies as a direct-financing lease.If the agreement qualifies as an operating lease,this $10,000 will be paid by the buyer-lessor.For convenience,provide all amounts in your solution in $000.
Required:

Accepted Answer

The answer of On January 1,2014,J.M.Rodriguez,owner of JMR Sound,sold the...

Question 5

A lessee wants to lease an asset on a long-term noncancelable basis,but wants to avoid capitalizing the lease.The lessee is considering the following strategies to accomplish its objective:   Which of the strategies above will provide the desired result?

Accepted Answer

A)  only 2 
B)  1 and 3 
C)  1 and 4 
D)  None 
A)  only 2 
B)  1 and 3 
C)  1 and 4 
D)  None

Question 6

Always Distributing entered into a leasing agreement with R & D Rental.The lease qualifies as a capital lease and calls for payments of $5,000 for 5 years with the first payment being made on January 1,2014,and subsequent payments being made on December 31 of each year.Always's incremental borrowing rate is 12 percent.
Prepare a schedule amortizing Always's lease obligation.

Accepted Answer

@#IMG-DLM& * $5,000

Question 7

Governor Corporation entered into a direct financing lease (interest rate 12 percent)to lease Pleasant an asset that cost Governor $90,000.The lease specified annual year-end payments for seven years.The lease also specified that,along with the last payment,Pleasant could purchase the asset for $8,000 cash.Under this lease agreement,Pleasant will be required to pay annual payments of

Accepted Answer

A)  $11,714. 
B)  $12,858. 
C)  $17,966. 
D)  $18,928. 
A)  $11,714. 
B)  $12,858. 
C)  $17,966. 
D)  $18,928.

Question 8

In order for a lease to be considered a finance (or capital)lease,international accounting standards require that a lease agreement

Accepted Answer

A)  transfers substantially all risks and rewards incident to ownership of an asset to the lessee. 
B)  contains a provision requiring transfer of title to the lessee by the end of the lease term. 
C)  provides that the term of the lease contract be longer than one year. 
D)  provides for a bargain purchase option. 
A)  transfers substantially all risks and rewards incident to ownership of an asset to the lessee. 
B)  contains a provision requiring transfer of title to the lessee by the end of the lease term. 
C)  provides that the term of the lease contract be longer than one year. 
D)  provides for a bargain purchase option.

Question 9

On July 1,2014,Biplane Aviation leased two company jets from SeeBee Aircraft for an initial period of 12 months with a provision for a continuation on a month-to-month basis.The lease is properly classified as an operating lease.Lease payments are to be made as follows:
   After the first year,the rent continues at $6,000 per month.Provide the entries required to record the lease payments for the first year on the books of

Accepted Answer

The answer of On July 1,2014,Biplane Aviation leased two company...

Question 10

Which of the following statements characterizes a sales-type lease?

Accepted Answer

A)  The lessor recognizes a dealer's profit at lease inception and interest revenue over the lease term. 
B)  The lessor recognizes only interest revenue over the lease term. 
C)  The lessor recognizes only interest revenue over the life of the asset. 
D)  The lessor recognizes a dealer's profit at lease inception and interest revenue over the asset life. 
A)  The lessor recognizes a dealer's profit at lease inception and interest revenue over the lease term. 
B)  The lessor recognizes only interest revenue over the lease term. 
C)  The lessor recognizes only interest revenue over the life of the asset. 
D)  The lessor recognizes a dealer's profit at lease inception and interest revenue over the asset life.

Question 11

A lease contains a bargain purchase option.In determining the lessee's capitalizable cost at the beginning of the lease term,the payment called for by the bargain purchase option would be

Accepted Answer

A)  subtracted at its present value. 
B)  added at its exercise value. 
C)  added at its present value. 
D)  subtracted at its exercise price. 
A)  subtracted at its present value. 
B)  added at its exercise value. 
C)  added at its present value. 
D)  subtracted at its exercise price.

Question 12

Which of the following statements concerning guaranteed residual values is appropriate for the lessee?

Accepted Answer

A)  The asset and related liability should be increased by the amount of the residual value. 
B)  The asset and related liability should be decreased by the amount of the residual value. 
C)  The asset and related liability should be decreased by the present value of the residual value. 
D)  The asset and related liability should be increased by the present value of the residual value. 
A)  The asset and related liability should be increased by the amount of the residual value. 
B)  The asset and related liability should be decreased by the amount of the residual value. 
C)  The asset and related liability should be decreased by the present value of the residual value. 
D)  The asset and related liability should be increased by the present value of the residual value.

Question 13

An asset with a market value of $100,000 is leased on January 1,2014.Five annual lease payments are due each January 1 beginning January 1,2014.The lessee guarantees the $40,000 residual value of the asset as of the end of the lease term on December 31,2018.The lessor's implicit interest rate is 8%. What is the annual lease payment?

Accepted Answer

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

Question 14

On January 1,2014,O'neil,Inc.signed a noncancelable lease for a silver polishing machine.The machine has an estimated useful life of nine years.The term of the lease is a six-year term with title passing to O'neil at the end of the lease.The agreement called for annual payments of $40,000 starting at the end of the first year.Assume aggregate lease payments were determined to have a present value of $200,000,based on implicit interest of 12 percent.What amount of interest expense should O'neil report in its 2014 income statement from this lease transaction?

Accepted Answer

A)  $0 
B)  $16,000 
C)  $24,000 
D)  $33,333 
A)  $0 
B)  $16,000 
C)  $24,000 
D)  $33,333

Question 15

On January 1,2014,Logan Company leased a machine to Glasgow Company.The machine had an original cost of $60,000.The lease term was five years and the implicit interest was on the lease was 15 percent.The lease is properly classified as a direct-financing lease.The annual lease payments of $17,306 are made each December 31.The machine reverts to Logan at the end of the lease term,at which time the residual value of the machine will be $4,000.The residual value is not guaranteed. At the inception of the lease,the balance of Logan's net receivable and Glasgow's liability would be
Logan Receivable Glasgow Liability

Accepted Answer

A)  $60,000 $60,000 
B)  $58,011 $58,011 
C)  $60,000 $58,011 
D)  $58,011 $60,000 
A)  $60,000 $60,000 
B)  $58,011 $58,011 
C)  $60,000 $58,011 
D)  $58,011 $60,000

Question 16

Which one of the following items is not part of the minimum lease payments from the standpoint of the lessee?

Accepted Answer

A)  The minimum rental payments called for by the lease 
B)  Any guarantee the lessee is required to make at the end of the lease term regarding any deficiency from a specified minimum 
C)  Any estimated residual value at the end of the lease term 
D)  Any payment the lessee must make at the end of the lease term to purchase the leased property under a bargain purchase option 
A)  The minimum rental payments called for by the lease 
B)  Any guarantee the lessee is required to make at the end of the lease term regarding any deficiency from a specified minimum 
C)  Any estimated residual value at the end of the lease term 
D)  Any payment the lessee must make at the end of the lease term to purchase the leased property under a bargain purchase option

Question 17

On December 31,2014,Endive Company leased a machine under a capital lease for a period of ten years,contracting to pay $100,000 on signing the lease and $100,000 annually on December 31 of the next nine years.The present value at December 31,2014,of the ten lease payments over the lease term discounted at 10 percent was $676,000.At December 31,2015,Endive's total capital lease liability is

Accepted Answer

A)  $486,000. 
B)  $518,000. 
C)  $533,600. 
D)  $607,960. 
A)  $486,000. 
B)  $518,000. 
C)  $533,600. 
D)  $607,960.

Question 18

Modesto,Inc.leased machinery with a fair value of $250,000 from Layton Machine Co.on December 31,2014.The contract is a six-year noncancelable lease with an implicit interest rate of 10 percent.The lease requires annual payments of $50,000 beginning December 31,2014.Modesto appropriately accounted for the lease as a capital lease.Modesto's incremental borrowing rate is 12 percent.Assuming the present value of an annuity due of 1 for 6 years at 10 percent is 4.7908 and the present value of an annuity due of 1 for 6 years at 12 percent is 4.6048,what is the lease liability that Modesto should report on the balance sheet at December 31,2014?

Accepted Answer

A)  $189,540 
B)  $200,000 
C)  $230,240 
D)  $239,540 
A)  $189,540 
B)  $200,000 
C)  $230,240 
D)  $239,540

Question 19

Which of the following is (are)NOT correct regarding disclosure requirements lessees?

Accepted Answer

A)  I only 
B)  II only 
C)  Both I and II 
D)  Both III and IV 
A)  I only 
B)  II only 
C)  Both I and II 
D)  Both III and IV

Question 20

On January 1,2014,Benjamin Industries leased equipment on an eight-year term at $15,000 annual rental payments,paid in advance.There is a bargain purchase option on December 31,2021 (end of lease),of $24,000.The economic life of the equipment is estimated to be 15 years.The interest rate is 12 percent.

Accepted Answer

The answer of On January 1,2014,Benjamin Industries leased equipment on...

Which of the following is true regarding the lease term?

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

Equal monthly rental payments for a particular lease should be charged to Rental Expense by the lessee for which of the following? Capital Lease Operating Lease

A lessee wants to lease an asset on a long-term noncancelable basis,but wants to avoid capitalizing the lease.The lessee is considering the following strategies to accomplish its objective: Which of the strategies above will provide the desired result?

In order for a lease to be considered a finance (or capital)lease,international accounting standards require that a lease agreement

Which of the following statements characterizes a sales-type lease?

A lease contains a bargain purchase option.In determining the lessee's capitalizable cost at the beginning of the lease term,the payment called for by the bargain purchase option would be

Which of the following statements concerning guaranteed residual values is appropriate for the lessee?

Which one of the following items is not part of the minimum lease payments from the standpoint of the lessee?

Which of the following is (are)NOT correct regarding disclosure requirements lessees?

Financial Reporting

A Review of the Accounting Cycle

The Balance Sheet and Notes to the Financial Statements

The Income Statement

Statement of Cash Flows and Articulation

Earnings Management

The Revenuereceivablescash Cycle

Revenue Recognition

Inventory and Cost of Goods Sold

Investments in Noncurrent Operating Assets-Acquisition

Investments in Noncurrent Operating Assets-Utilization and Retirement

Debt Financing

Equity Financing

Investments in Debt and Equity Securities

Income Taxes

Employee Compensation-Payroll, pensions, Other Compissues

Earnings Per Share

Derivatives, contingencies, business Segments, and Interim Reports

Accounting Changes and Error Corrections

Statement of Cash Flows Revisited

Accounting in a Global Market

Analysis of Financial Statements

Filters

Exam 15: Leases

Which of the following is true regarding the lease term?

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

Equal monthly rental payments for a particular lease should be charged to Rental Expense by the lessee for which of the following? Capital Lease Operating Lease

A lessee wants to lease an asset on a long-term noncancelable basis,but wants to avoid capitalizing the lease.The lessee is considering the following strategies to accomplish its objective: Which of the strategies above will provide the desired result?

In order for a lease to be considered a finance (or capital)lease,international accounting standards require that a lease agreement

Which of the following statements characterizes a sales-type lease?

A lease contains a bargain purchase option.In determining the lessee's capitalizable cost at the beginning of the lease term,the payment called for by the bargain purchase option would be

Which of the following statements concerning guaranteed residual values is appropriate for the lessee?

Which one of the following items is not part of the minimum lease payments from the standpoint of the lessee?

Which of the following is (are)NOT correct regarding disclosure requirements lessees?

Financial Reporting

A Review of the Accounting Cycle

The Balance Sheet and Notes to the Financial Statements

The Income Statement

Statement of Cash Flows and Articulation

Earnings Management

The Revenuereceivablescash Cycle

Revenue Recognition

Inventory and Cost of Goods Sold

Investments in Noncurrent Operating Assets-Acquisition

Investments in Noncurrent Operating Assets-Utilization and Retirement

Debt Financing

Equity Financing

Investments in Debt and Equity Securities

Income Taxes

Employee Compensation-Payroll, pensions, Other Compissues

Earnings Per Share

Derivatives, contingencies, business Segments, and Interim Reports

Accounting Changes and Error Corrections

Statement of Cash Flows Revisited

Accounting in a Global Market

Analysis of Financial Statements

Filters